THE 

ARTHUR  YOUNG 

ACCOUNTING 

COLLECTION 


Graduate  School  of 
Business  Administration 

Library  of  the 

University  of  California 

Los  Angeles 


Library 

Graduate  School  of  Business  Administrate 
University  of  California 
Los  Angeles  24,  California 


01  CALiKUKIMl* 
AT 
LOS  ANGELES 


TWENTY 

TWENTY-MINUTE  LESSONS 
IN  BOOKKEEPING 


By 
FRANK  LOOMIS  BEACH,  B.S.,  C.P.A. 

Cashier  of  the  Hibernia  Commercial  and  Savings 
Bank,  Portland,  Oregon;  Instructor  in  Accounting 
(Evening  Classes),  Oregon  Institute  of  Technology 


THE  RONALD  PRESS  COMPANY 

NEW  YORK 


149798 


Copyright,  1921,  by 
THE  RONALD  PRESS  COMPANY 


Library 

HF 


535  -fc 

PREFACE 

c 

This  little  volume  is  designed  as  a  short  course 

«\  for  the  busy  man  or  woman  who  wishes  to  get  an 
understanding  of  accounts.  Lengthy  rules  and 
theories  have  been  omitted,  and  emphasis  has  been 
placed  on  the  important  points. 

Short  as  the  lessons  are,  none  of  the  essentials 

of  bookkeeping  are  omitted.    When  the  reader  has 

.        completed  the  twenty  lessons  he  should  be  able  to 

£      read  intelligently  a  financial  statement.   He  should 

0      also  have  the  foundation  for  acquiring  an  under- 

standing of  any  system  of  books. 
i  While  there  will  still  be  much  to  learn  before 

C  he  can  master  the  details  of  higher  accountancy, 
•~  nevertheless  the  completing  of  the  lessons  will 
£  mark  one  of  the  most  important  steps  in  that 
-*  direction. 

FRANK  LOOMIS  BEACH 
?      Portland,  Oregon, 

November  i,  1921 


CONTENTS 


PAGE 
INTRODUCTION i 

The  Language  of  Business 

Bookkeeping 

Mode  of  Procedure — Lessons 

Mode  of  Procedure — Problems 


LESSON 
i.  THE  JOURNAL    . 

Making  Entries 
Form  of  Journal 


2.  THE  LEDGER. 


Classification  of  Items 
The  Ledger  Account 

3.  TRIAL  BALANCE 13 

Balance  of  Accounts 
Proving  the  Ledger 

4.  DEBIT  AND  CREDIT 16 

Terms  Defined 
Merchandise  Transactions 


5.  EXPENSE  AND  INCOME 19 

Recording  Expenses 

Profits 

Force  Accounts 

vii 


viu  CONTENTS 

LESSON  PAGE 

6.  MERCHANDISE  INVENTORY 23 

Merchandise  Profit 
Taking  Inventory 
Recording  Inventory 

7.  PROFIT  AND  Loss  ACCOUNT 28 

Net  Profit 

Profit  and  Loss 

Closing  into  Profit  and  Loss 

8.  BALANCE  SHEET  AND  PROFIT  AND  Loss  STATE- 

MENT     34 

Trial  Balance  After  Closing 

Balance  Sheet 

Profit  and  Loss  Statement 

9.  ACCOUNTS  PAYABLE  AND  RECEIVABLE  ...      38 

Buying  on  Account 
Selling  on  Account 

10.  REVIEW  PROBLEM 41 

11.  NOTES  PAYABLE  AND  RECEIVABLE   ....      43 

Notes  Payable  Account 
Payment  of  Note 
Notes  Receivable 

12.  CASH  DISCOUNT 47 

Purchase  Terms 
Discount  Income 
Discount  Expense 
Bank  Discount 

13.  CASH  BOOK 51 

Entry  of  Cash  Transactions 
Debiting  Cash  Account 
Crediting  Cash  Account 


CONTENTS  ix 

LESSON  PAGE 

14.  INDIVIDUAL  EXPENSE  AND  PROFIT  ACCOUNTS      55 

Classifying  Expenses 
Closing  of  the  Accounts 

15.  PARTNERSHIP  ACCOUNTS 58 

Division  of  Profits 
Distribution  of  Losses 

16.  CORPORATION  ACCOUNTS 62 

Capital  Stock 
Surplus  Account 
Deficit  Account 

17.  DEPRECIATION  EXPENSE 66 

Charging  Off  for  Depreciation 
Rates  of  Depreciation 

1 8.  ACCRUALS  AND  PREPAYMENTS 69 

Accrued  Interest  Payable 
Entry  at  Closing  of  Books 
Prepaid  Insurance 
Adjustment  at  End  of  Year 

19.  GENERAL  REVIEW  PROBLEM        75 

20.  GENERAL  REVIEW  PROBLEM  (Continued)   .     .       77 

APPENDIX  A — TWENTY    "POINTERS"    ON    BOOK- 
KEEPING  79 

B — DEFINITIONS      OF      BOOKKEEPING 

TERMS 82 

C — ANSWERS  TO  PROBLEMS  ....       86 
D — BIBLIOGRAPHY    OF    SELECTED    AC- 
COUNTING BOOKS 123 


Twenty  Twenty-Minute  Lessons 
in  Bookkeeping 


INTRODUCTION 

The  Language  of  Business 

The  student  of  bookkeeping  is  learning  to  read 
and  write  the  language  of  business.  The  growth  or 
decline  of  a  commercial  enterprise  is  written  in 
figures,  and  the  man  who  hopes  to  win  in  the  busi- 
ness game  must  learn  to  understand  its  language. 

Even  if  you  never  expect  to  be  a  bookkeeper, 
you  must  still  understand  the  records  kept  by  book- 
keepers. In  some  form  or  another  everyone  must 
keep  track  of  money,  and  the  more  intelligently  he 
can  do  so,  the  more  money  will  he  probably  have 
to  keep  track  of. 

Bookkeeping 

As  a  profession,  accountancy  is  becoming  more 
and  more  attractive.  The  income  tax,  the  increase 
in  the  size  of  corporations,  the  force  of  competition 
between  business  concerns — all  these  factors  have 
created  a  demand  for  men  with  an  understanding 
of  accounts. 


TWENTY  LESSONS  IN  BOOKKEEPING 

Bookkeeping  is  the  first  step  in  accountancy. 
The  principles  set  forth  in  this  volume  are  those 
upon  which  all  modern  accounting  systems  are 
built. 

Bookkeeping  is  not  difficult.  You  merely  write 
down  what  takes  place  in  your  store  or  factory. 
Modern  bookkeeping  is  based  on  the  fact  that  in 
business  you  are  trading  articles  of  value  for  other 
articles  of  value. 

When,  for  instance,  you  buy  flour,  you  pay  out, 
say,  $50  in  gold  and  receive  in  return  $50  in  mer- 
chandise. When  you  sell  the  flour,  you  give  out  so 
many  dollars  of  the  merchandise  and  receive  back 
an  equal  number  of  dollars  hi  gold,  or  some  other 
form  of  money. 

The  idea  is  the  same  when  you  give  out  money 
for  salaries.  You  pay  out  $20  in  cash  and  receive 
back  $20  in  services. 

Every  time  you  give  out  either  gold  or  mer- 
chandise in  a  trade  you  receive  back  something  of 
value.  Otherwise,  you  would  not  make  the  trade. 

So  it  follows  that  in  keeping  books  the  record  of 
every  transaction  is  divided  into  two  entries,  one 
showing  the  merchandise  or  services  coming  into 
the  business  and  the  other  showing  the  money,  or 
other  articles  of  value,  going  out.  These  opposing 
entries  must  of  necessity  be  always  for  equal 
amounts. 


INTRODUCTION  3 

Mode  of  Procedure — Lessons 

Do  not  try  at  first  to  connect  the  illustrations 
given  in  these  lessons  with  the  books  of  the  business 
with  which  you  happen  to  be  familiar.  The  con- 
nection will  be  plain  enough  after  you  have  com- 
pleted the  course.  You  will  understand  the 
company's  books  much  better  when  you  have 
learned  the  principles  explained,  which  are  at  the 
foundation  of  all  accounting  systems. 

In  studying  the  twenty  lessons  you  should  work 
with  pencil  in  hand.  When,  for  instance,  you  come 
to  the  first  illustration,  showing  that  $10  has  been 
borrowed  with  which  to  start  business,  take  your 
pencil  and  copy  the  entry  on  a  sheet  of  paper.  Do 
the  same  with  the  other  illustrations.  Even  if  at 
first  the  reasons  for  putting  the  facts  in  the  form 
shown  are  not  entirely  clear,  you  will  find  this 
practice  of  copying  the  illustrations  a  wonderful 
assistance.  Follow  this  practice  in  all  cases  and 
you  will  have  no  difficulty  in  completing  the 
lessons. 

When  you  come  to  the  problem  at  the  end  of 
each  lesson,  write  down  the  facts  given  there  in 
exactly  the  form  you  used  when  copying  the  ex- 
ample in  the  text.  Use  your  pencil.  By  so  doing 
you  will  find  that  you  can  pass  from  lesson  to  lesson 
with  surprising  ease,  and  in  a  short  time  you  will 
have  completed  the  course. 


4  TWENTY  LESSONS  IN  BOOKKEEPING 

Mode  of  Procedure — Problems 

Answers  to  the  problems  are  given  in  the  back 
of  the  book.  However,  do  not  look  up  an  answer 
until  you  have  completed  the  problem. 

Some  of  the  problems  given  may  seem  so  simple 
that  you  may  be  tempted  to  omit  them.  Do  not 
yield  to  the  temptation.  The  most  important  thing 
in  the  course  is  the  working  of  each  problem  as  it 
comes  up. 


Lesson  i 


THE  JOURNAL 

Making  Entries 

Bookkeeping,  as  the  term  is  commonly  used,  is 
merely  a  short  method  of  writing  down  the  daily 
happenings  of  your  business,  such  as  the  paying  of 
rent,  the  selling  of  merchandise,  etc. 

Suppose  you  start  business  on  January  i  by 
borrowing  $10  from  John  Smith,  writing  down  this 
transaction  in  the  brief  form  used  in  bookkeeping: 


Jan.  I 

Cash 

John  Smith 

Borrowed  to  start  business. 


This  entry  shows  that  your  cashier  has  received 
$10  in  cash  and  your  business  has  gone  into  debt 
to  John  Smith  for  $10. 

(Write  down  the  above  transaction  on  a  sheet  of 
paper,  copying  it  exactly  as  it  appears.  Follow  this 
procedure  with  every  illustration  given.  You  will 
find  that  the  mere  act  of  copying  helps  to  make  the 
transaction  clearer.) 

As  you  see  in  the  illustration,  there  are  two 


6  TWENTY  LESSONS  IN  BOOKKEEPING 

columns  on  the  one  side  of  the  page.  When  $10  is 
put  in  the  left-hand  column,  $10  is  also  put  in  the 
right-hand  column.  The  number  of  dollars  in  the 
left-hand  column  always  equals  the  number  of 
dollars  in  the  right-hand  column. 

You  next  buy,  on  January  2,  5  sacks  of  flour  for 
$i  a  sack  in  cash: 


Jan.  2 


Merchandise. 
Cash. 


5  sacks  flour  purchased. 


$5 


$5 


This  entry  shows  that  your  storeman  has  re- 
ceived $5  in  merchandise  and  your  cashier  has  paid 
out  $5  in  cash. 

(Be  sure  to  copy  this  illustration.) 

The  $5  worth  of  merchandise,  having  been  pur- 
chased, comes  into  the  business  and  the  $5  cash 
goes  out. 

Form  of  Journal 

The  amounts  coming  in  are  shown  in  the  left- 
hand  column,  as  the  $10  cash  and  the  $5  mer- 
chandise. The  amounts  going  out  are  shown  in  the 
right-hand  column,  as  the  $10  debt  and  the  $5 
cash.  This  method  of  listing  the  amounts  coming 
in  and  going  out  is  used  to  save  time. 


THE  JOURNAL 


One  way  of  remembering  that  you  use  the  left- 
hand  column  to  show  the  amounts  coming  into  the 
business,  is  to  think  of  driving  an  automobile:  the 
machines  coming  toward  you  are  on  the  left-hand 
side. 

Following  this  method  of  writing  what  comes 
into  the  business  in  the  left-hand  column  and  what 
goes  out  in  the  right-hand  column,  you  record  a 
sale  as  follows: 


Jan.  3 


Cash 

Merchandise 

Sale  3  sacks  of  flour. 


By  this  entry  you  can  see  at  a  glance  that  the 
cashier  has  taken  in  $3  in  cash  and  that  the  store- 
man  has  given  out  $3  in  merchandise. 

The  entries  are  all  written  in  a  blank  book  as 
they  occur,  one  below  another,  thus: 


Jan.  i 

Cash 

John  Smith 

Borrowed  to  start  business. 

Jan.  2 

Merchandise 

Cash 

5  sacks  flour  purchased. 


$10 


$10 


TWENTY  LESSONS  IN  BOOKKEEPING 


Jan.  3 
Cash  

•i 

Merchandise  

a 

Sale  3  sacks  of  flour. 

The  blank  book  in  which  transactions  are  so 
written  is  called  a  "journal." 

Problem  i 

Prepare  a  journal  page  showing  the  transactions  given 
below  of  a  business  just  starting. 

In  working  this  problem,  first  try  to  write  down  the 
transactions  in  bookkeeping  style  without  referring  to  the 
illustrations,  then  compare  your  work  with  the  illustrations. 

Remember  that  you  write  down  an  amount  in  the  left- 
hand  column  for  what  comes  in,  and  then  an  equal  amount 
in  the  right-hand  column  on  the  line  below  for  what  goes 
out.  If  you  keep  this  point  in  mind,  you  will  have  no 
difficulty. 

Jan.  7.  The  business  borrows  $5  cash  from  Harry  Smith. 
It  pays  $3  cash  for  6  boxes  of  soap. 
It  sells  2  boxes  of  soap  for  $i. 
It  borrows  $10  more  from  Harry  Smith. 
It  buys  4  brooms  for  $2. 
It  sells  i  broom  for  50  cents. 


Lesson  2 
THE  LEDGER 

Classification  of  Items 

In  the  first  lesson  you  learned  how  to  keep  a 
journal.  Transactions  are  written  in  the  journal 
as  they  occur,  one  after  another,  without  regard  to 
whether  they  refer  to  merchandise,  cash,  or  people. 

It  is  evident  that  in  a  business  of  any  size  it 
would  not  be  practical  to  go  back  through  the 
journal  and  pick  out  the  cash  items  whenever  you 
wished  to  know  how  much  money  there  was  in  the 
till. 

So  you  use  a  second  book  in  which  you  group,  by 
rewriting  on  one  page,  all  the  items  that  concern 
cash,  and  on  another  page  all  the  items  that  concern 
merchandise,  etc. 

A  page  on  which  the  cash  items  are  so  rewritten 
appears  as  follows: 

CASH 


Jan.  2.    J 


Jan.  i     J $10 

Jan.  3    J 3 


(Copy  the  above  illustration  before  going  further 
with  the  lesson.) 


10         TWENTY  LESSONS  IN  BOOKKEEPING 

The  cash  that  has  come  in  is  shown  on  the  left- 
hand  side,  and  the  cash  that  has  gone  out  is  shown 
on  the  right-hand  side,  the  same  as  in  the  columns 
of  the  journal. 

The  first  line  on  the  left-hand  side  of  the  cash 
page,  for  example,  shows  that  on  January  i,  $10 
cash  came  into  the  business,  and  the  letter  J  shows 
that  the  details  of  this  transaction  are  in  the  journal. 

The  Ledger  Account 

It  is  not  necessary  to  go  into  further  details 
with  regard  to  the  transaction  in  this  second  book, 
as  you  have  already  written  a  full  account  of  it 
in  the  journal. 

The  first  line  on  the  right-hand  side  shows  that 
$5  cash  has  gone  out  of  the  business  and  that  the 
details  are  explained  in  the  journal  under  January  2. 

The  second  line  on  the  left-hand  side  shows  that 
$3  more  cash  has  come  into  the  business. 

It  is  evident  that  if  you  add  the  amounts  on  the 
left-hand  side,  $13,  you  will  have  the  total  cash  that 
has  come  in.  If  from  this  amount  you  subtract  the 
cash  that  has  gone  out,  amounting  to  $5,  as  shown 
on  the  right-hand  side,  you  will  have  the  amount 
still  remaining  in  the  till,  or  $8. 

Thus,  by  grouping  the  journal  entries  in  this 
second  book,  it  becomes  possible  to  check  up  easily 
the  amount  of  cash  that  should  be  on  hand. 


THE  LEDGER  II 

A  similar  grouping  of  the  merchandise  entries 
in  Lesson  i  follows : 

MERCHANDISE 


Jan.  2    J $5 


Jan.  3   J $3 


The  business  has  received  $5  in  merchandise 
and  given  out  $3  in  merchandise. 

In  the  case  of  John  Smith,  the  business  has  given 
out  its  promise  to  pay  $10,  and  hence  the  entry  in 
the  second  book  is: 

JOHN  SMITH 

Jan.  I     J $10 


When,  on  January  7,  you  pay  $5  back  to  John 
Smith  on  this  promise,  the  journal  entry  is : 


John  Smith 

Cash 

Payment  on  $10  debt. 


The  $5  shown  in  the  left-hand  column  opposite 
"John  Smith"  is  written  on  the  left-hand  side  of 
the  page  devoted  to  John  Smith  in  the  second  book. 
The  $5  shown  in  the  right-hand  column  opposite 


12         TWENTY  LESSONS  IN  BOOKKEEPING 

"Cash"  is  written  on  the  right-hand  side  of  the 
cash  sheet  in  the  second  book. 

The  account  in  the  second  book  with  John 
Smith  then  appears: 

JOHN  SMITH 


Tan.  7 

J.  • 

$5 

Tan.  i 

T.. 

$10 

Taking  the  difference  between  the  right-  and 
the  left-hand  sides,  you  find  that  you  still  owe  $5. 

A  book  in  which  transactions  are  thus  grouped 
is  called  a  "ledger."  One  of  the  groups,  such  as 
Cash,  Merchandise,  or  John  Smith,  is  known  as  a 
ledger  account. 

Problem  2 

Prepare  a  ledger  showing  accounts  with  Harry  Smith, 
Merchandise,  and  Cash,  taking  the  items  from  the  journal 
prepared  in  Problem  i. 

The  problem  is  simple  if  you  remember  that  each  item 
in  the  left-hand  column  of  the  journal  goes  on  the  left- 
hand  side  of  the  ledger  page,  and  each  item  in  the  right- 
hand  column  goes  on  the  right-hand  side  of  the  ledger 
page.  Check  the  amounts  in  the  journal  as  you  write 
them  in  the  ledger,  to  see  that  you  do  not  overlook  trans- 
ferring any  item.  Every  item  in  the  journal  must  go  into 
the  ledger. 


Lesson  3 
TRIAL  BALANCE 

Balance  of  Accounts 

You  will  remember  that  in  Lesson  i  every  time 
you  wrote  $10  in  the  left-hand  column  of  the  journal 
you  also  wrote  $10  in  the  right-hand  column.  The 
journal  entry  was : 


Cash. 


John  Smith . 


Borrowed  to  start  business. 


$10 


The  total  of  the  left-hand  column  must,  there- 
fore, equal  the  total  of  the  right-hand  column. 

The  books  of  a  business  may  be  considered  as  a 
weight  scale.  Every  time  you  add  $5  to  the  left- 
hand  side  you  also  add  $5  to  the  right-hand  side, 
and  thus  keep  the  sides  balanced. 

$5  % 


A 

The  scale  will  continue  to  balance  if  you  add 
$10  more  to  the  left-hand  side  and  $10  more  to  the 
right-hand  side. 

13 


14         TWENTY  LESSONS  IN  BOOKKEEPING 

Proving  the  Ledger 

You  saw  that  every  entry  in  the  left-hand 
column  of  the  journal  is  also  posted  to  the  left-hand 
side  of  some  ledger  account,  and  that  every  entry 
in  the  right-hand  column  of  the  journal  is  posted 
to  the  right-hand  side  of  some  ledger  account.  As 
the  amounts  in  the  two  columns  of  the  journal  are 
equal,  the  total  of  all  entries  on  the  left-hand  side 
of  the  ledger  accounts  must  equal  the  total  of  all 
the  entries  on  the  right-hand  side. 

Suppose  you  wish  to  see  if  your  ledger  is  correct. 
To  do  this  take  a  sheet  of  paper  and  write  down 
your  ledger  accounts  thus: . 


Cash  

Debit 
$13 

Credit 
Sio 

Merchandise  

C 

'I 

Tohn  Smith  .  . 

<; 

IO 

Opposite  the  name  of  each  account  write,  first, 
the  total  of  the  entries  on  the  left-hand  side;  and 
in  the  next  column  the  total  of  the  entries  on  the 
right-hand  side. 

In  your  ledger  account  with  cash  you  have  two 
entries  on  the  left-hand  side,  one  for '$10  and  one 
for  $3,  making  a  total  of  $13.  This  $13  is  shown 
above.  On  the  right-hand  side  of  your  Cash  ac- 
count you  have  two  $5  entries,  or  a  total  of  $10. 


TRIAL  BALANCE  15 

which  is  shown  in  the  right-hand  column  above. 
In  the  same  way  the  sheet  shows  the  totals  of  your 
Merchandise  and  John  Smith  accounts. 

As  there  has  been  an  entry  on  the  right-hand 
side  for  every  entry  on  the  left-hand  side,  both  for 
the  same  amount,  the  totals  of  the  two  columns 
must  be  equal,  as  shown  in  the  foregoing  example. 

Testing  a  ledger  in  this  fashion  is  called  "taking 
a  trial  balance."  When  the  totals  of  both  the  debit 
and  the  credit  sides  are  equal  the  books  are  said 
to  be  in  balance. 

Problem  3 

Prepare  a  journal,  ledger,  and  trial  balance,  covering 
the  following: 

Feb.  i.  John  Jones  invests  $10  cash  in  a  candy  business. 
"    2.  The  business  buys  50  pounds  of  sugar  at  10  cents 

a  pound,  paying  cash. 
"    3.  The  business  sells  for  cash  40  pounds  of  sugar  at 

10  cents  a  pound. 

In  preparing  the  journal,  remember  that  we  show  the 
amount  coming  into  the  business  in  the  left-hand  column, 
and  the  amount  going  out  in  the  right-hand  column. 
The  amount  coming  in  is  always  written  one  line  above 
the  amount  going  out. 

Finish  the  journal  before  starting  the  ledger. 


Lesson  4 
DEBIT  AND  CREDIT 

Terms  Defined 

You  have  learned  how  to  keep  a  journal  and  a 
ledger,  and  how  to  prepare  a  trial  balance. 

Consider  now  the  Cash  account  as  found  in  the 
ledger: 

CASH 


Tan.  i 

J..                        $10 

Jan.  2 

j..              $•= 

The  $10  on  the  left-hand  side  shows  that  you 
have  turned  $10  over  to  the  cashier,  who,  of  course, 
is  now  responsible  to  the  business  for  that  amount. 

Thus  the  entries  on  the  left-hand  side  show  the 
amount  the  cashier  owes  the  business.  The  left- 
hand  side  is  called  the  "debit"  side,  the  word  debit 
coming  from  the  same  Latin  word  as  debt. 

If  the  cashier  pays  out  $5  for  the  good  of  the 
business,  you  give  him  credit  for  that  amount  by 
putting  it  down  on  the  right-hand  side  of  his  ac- 
count. The  right-hand  side  is  therefore  called  the 
"credit"  side. 

If  the  debit  side  shows  $10  and  the  credit  side  $5, 
the  cashier  is  responsible  to  the  business  for  the 
difference,  or  $5. 

16 


DEBIT  AND  CREDIT  17 

Merchandise  Transactions 

Consider  the  Merchandise  account  from  the 
same  standpoint.  You  turn  over  $5  worth  of  flour 
to  the  storeman.  He  is  now  responsible  to  the 
business  for  this  amount,  and  so  you  show  $5  on 
the  debit  side  of  the  Merchandise  account. 

You  should  remember  that  these  entries  are 
first  made  in  the  journal,  and  from  there  posted  to 
the  ledger.  Entries  are  always  made  through  the 
journal ;  never  directly  to  the  ledger.  Turn  back  to 
Lesson  i  and  note  the  journal  entry. 

MERCHANDISE 


Jan. 2    J. 


When  a  $3  sale  is  made,  the  storeman  delivers 
this  amount  from  his  stock  and  you  relieve  him  of 
responsibility  for  $3  by  entering  the  amount  on  the 
credit  side  of  the  Merchandise  account. 


MERCHANDISE 


Jan.  2    J $5      Jan.  3    J $3 

The  storeman  is  now  responsible  to  the  business 
for  the  difference,  or  $2. 

The  debit  side  (left-hand)  shows  debt  or  re- 
sponsibility to  the  business.  The  credit  side  (right- 
hand)  shows  debt  or  responsibility  of  the  business. 


1 8         TWENTY  LESSONS  IN  BOOKKEEPING 

Bookkeeping  is  merely  a  short  method  of  show- 
ing these  facts. 

Problem  4 
Prepare  a  journal,  ledger,  and  trial  balance. 

Mar.  5.  B.  Jones  starts  business  by  investing  $20.  On 
the  same  day  he  buys  $10  worth  of  flour. 

"  6.  He  sells  $5  worth  of  flour.  The  same  day  he  buys 
another  $12  worth  of  merchandise. 

"  7.  He  sells  $8  worth  of  merchandise  and  invests 
another  $5  in  the  business. 

What  is  the  total  of  the  debit  side  of  the  Cash  ac- 
count? Of  the  credit  side?  How  much  is  the  cashier 
now  responsible  to  the  business  for? 


Lesson  5 
EXPENSE  AND  INCOME 

Recording  Expenses 

You  have  seen  that  when  money  is  spent  for 
merchandise,  you  debit  Merchandise  and  credit 
Cash: 


Jan.  2 

Merchandise 

Cash 

5  sacks  flour  purchased  at  $1  a  sack. 


Merchandise  is  coming  into  the  business  and 
cash  is  going  out. 

But  merchandise  is  not  the  only  thing  that  is 
responsible  for  your  expenditure  of  money.  It  is 
also  necessary  to  meet  various  expenses,  such  as 
rent,  salaries,  etc.  These  expenditures  are  entered 
in  the  journal  in  exactly  the  same  way  as  expendi- 
tures for  merchandise : 


Feb.  5 


Rent  Expense 

Cash 

Rent  for  February. 


$10 


$10 


20        TWENTY  LESSONS  IN  BOOKKEEPING 


Salary  Expense 

Cash 

Salaries  for  week  ending  Feb.  5. 


$20 


$20 


Ledger  accounts  are  opened  with  the  various 
items  of  expense,  and  the  journal  entries  are  posted 
to  these  accounts.  All  that  is  required  to  open  a 
new  ledger  account  is  to  write  the  name  of  the 
account  at  the  top  of  a  new  sheet. 

RENT  EXPENSE 


Feb.  5    J- 


$10 


SALARY  EXPENSE 


Feb.  5    J $20 


When  the  trial  balance  is  taken  these  accounts 
are  shown  the  same  as  any  other  accounts. 

Profits 

Furthermore,  there  are  causes  other  than  the 
sale  of  merchandise  which  bring  money  into  the 
business.  Suppose  the  business  has  $100  loaned 
out  which  is  bringing  in  $6  interest  a  year.  When 
this  $6  comes  in,  we  must  debit  Cash,  for  the  cashier 
is  now  responsible  for  this  amount,  and  we  must 


EXPENSE  AND  INCOME  21 

credit  Interest  Income,  for  that  is  the  force  which 
has  caused  the  money  to  come  in: 


Feb.  10 


Cash. 


$6 


Interest  Income 

Interest  received  for  I  year  on  loan  of  $100 
to  Tom  Ely. 


Force  Accounts 

Factors  such  as  expense  and  interest  are  forces 
which  cause  money  either  to  come  in  or  to  go  out 
of  the  business,  and  we  may  refer  to  the  accounts 
as  force  accounts. r 

Merchandise  and  Cash  accounts,  on  the  other 
hand,  represent  real  property  actually  on  hand  and 
are  known  as  real  accounts. 

The  distinction  between  force  and  real  accounts 
is  important. 

Force  accounts  merely  point  out  where  money 
has  come  from  or  where  it  has  gone.  Force  ac- 
counts deal  with  the  past.  For  example,  we  have 
the  account  with  Salary  Expense,  which  shows  that 
$20  of  our  money  has  gone  for  salaries.  This  $20 
has  been  entirely  used  up;  we  cannot  sell  our  Salary 
account  and  get  back  the  money  which  we  have 
spent. 


1  These  accounts  are  also  known  as  nominal  accounts. 


22         TWENTY  LESSONS  IN  BOOKKEEPING 

Real  accounts,  however,  represent  how  much 
we  now  have  on  hand  and  how  much  we  now  ac- 
tually owe.  Thus,  Merchandise  is  a  real  account; 
we  can  sell  the  merchandise  and  get  back  the  money 
which  has  been  put  into  it.  John  Smith,  in  the 
first  lesson,  is  a  real  account,  as  it  represents  a  debt 
which  the  business  owes. 

When  the  force  is  one  which  causes  money  to 
come  into  the  business,  we  consider  the  force  as 
creditable  and  we  credit  the  account,  as  we  did  the 
Interest  account. 

When  the  force,  like  rent  expense,  causes  us  to 
pay  out  money,  it  is  considered  discreditable  (be- 
ginning with  the  same  letter  as  debit)  and  we  debit 
the  force  account. 

Problem  6 
Prepare  a  journal,  ledger,  and  trial  balance. 

Apr.  2.  Johnson  starts  business  by  investing  $30.  On  the 
same  day  he  pays  out  $10  for  rent  expense  for 
April  and  also  buys  $12  worth  of  merchandise. 

"  3.  He  sells  $5  worth  of  merchandise  and  collects  $4 
rent  for  the  front  of  the  store. 

"    4.  He  pays  out  $8  in  wages. 

Which  of  your  ledger  accounts  represent  actual  prop- 
erty or  actual  debts?  Which  represent  forces? 


Lesson  6 
MERCHANDISE  INVENTORY 

Merchandise  Profit 

It  is  evident  that  if  we  sold  our  merchandise  for 
the  same  price  as  we  paid  for  it,  there  would  be  no 
object  in  staying  in  business. 

We  buy  6  sacks  of  flour  at  $i  a  sack: 


May  5 

Merchandise 

Cash $6 

6  sacks  of  flour  bought  at  $i  a  sack. 

We  sell  4  sacks  of  this  flour  at  $1.25  a  sack: 

May  6 

Cash $5 

Merchandise $5 

4  sacks  of  flour  sold  at  $1.25.  0 

After  posting  these  journal  entries  to  the  ledger, 
the  Merchandise  account  appears  as  follows: 

MERCHANDISE 
May  5    J $6      May  6    J $5 


24         TWENTY  LESSONS  IN  BOOKKEEPING 

(Remember  to  study  these  lessons  with  a  pencil 
in  hand  and  to  copy  each  of  the  illustrations.  Do 
not  try  to  shorten  the  work  by  omitting  the  copy- 
ing.) 

In  this  case  it  is  easy  to  tell  how  much  was  paid 
for  the  merchandise  which  has  been  sold  (4  sacks 
costing  $i  each,  a  total  of  $4).  Knowing  that  the 
merchandise  which  has  been  sold  has  cost  us  $4 
and  that  we  have  received  $5,  it  is  easy  to  figure 
the  profit.  The  profit,  of  course,  is  $i. 

Taking  Inventory 

But  in  a  business  of  any  size,  handling  many 
different  articles  and  buying  and  selling  every  day, 
it  is  not  practical  to  go  back  through  the  journal 
and  figure  out  what  articles  have  been  sold  and 
what  their  cost  was. 

So  we  count  how  much  is  left  on  hand  (take 
inventory)  and  find  the  cost  price  of  this  unsold 
merchandise.  In  our  example  we  count  the  sacks 
of  flour  and  find  two  sacks  still  in  stock.  This  flour 
cost  $i  a  sack.  So  the  value  of  the  inventory  is  2 
times  $i,  or  $2. 

The  ledger  account  shows  that  the  merchandise 
we  started  with  cost  $6.  We  have  taken  inventory 
and  found  that  the  merchandise  still  on  hand  cost 
$2.  The  merchandise  which  has  been  sold  must, 
therefore,  have  cost  the  difference,  or  $6  —  $2  =  $4. 


MERCHANDISE  INVENTORY  25 

If  we  take  the  cost  of  the  merchandise  we  have 
bought  and  subtract  the  cost  of  that  which  has  not 
been  sold,  the  difference  will  give  us  the  cost  of  the 
merchandise  which  has  been  sold. 

We  have  received  $5  for  merchandise  only  cost- 
ing us  $4.  The  profit,  therefore,  has  been  $i.. 

Recording  Inventory 

The  inventory  is  usually  taken  once  a  year. 

We  consider  that  all  the  merchandise  found  on 
hand  at  the  time  the  inventory  is  taken  is  turned 
over  to  a  new  storekeeper. 

The  cost  of  the  goods  on  hand  is  figured  and  we 
charge  the  new  storekeeper  with  this  amount. 
The  old  storekeeper  is  given  credit. 


Dec.  31 

Merchandise  (new  account) 

Merchandise  (old  account) .  . 
Inventory  taken  at  end  of  year. 


With  this  entry  we  debit  the  new  storekeeper 
and  credit  the  old  storekeeper  for  the  goods  on 
hand. 

This  entry  is  made  when  the  inventory  is  taken 
at  the  end  of  the  year,  even  though  the  merchan- 
dise is  not  physically  turned  over  to  a  new  store- 
keeper. 


26         TWENTY  LESSONS  IN  BOOKKEEPING 

A  new  sheet  is  headed  up  in  the  ledger  and  a 
new  account  is  opened  with  Merchandise. 
The  journal  entry  is  then  posted: 

MERCHANDISE  (new  account) 


'  Dec.  31     J $2 


This  new  Merchandise  account  shows  the 
amount  for  which  the  storeman  is  now  actually 
responsible. 

The  other  half  of  the  journal  entry  is  posted  to 
the  former  Merchandise  account,  which  will  then 
appear  as  follows : 

MERCHANDISE  (old  account) 


May  5    J 


May    6    J $5 

Dec.  31    J  (inv.) 2f 


Posting  the  cost  of  the  goods  on  hand  to  the 
credit  side  of  the  account  gives  the  same  result  as 
subtracting  $2  from  the  $6  on  the  debit  side  in 
order  to  find  the  cost  of  the  flour  sold.  The  account 
shows  that  we  have  made  a  profit  of  $i. 

Problem  6 

Prepare  a  journal  and  a  ledger  with  the  following 
accounts:  Merchandise  (old  account);  Merchandise  (new 
account);  Cash;  Sam  Smith,  Proprietor. 


MERCHANDISE  INVENTORY  27 

Apr.  5.  Sam  Smith  starts  business  investing  $25  cash. 
He  buys  $20  worth  of  merchandise  for  cash. 
He  sells  $15  worth  for  cash. 

"    6.  He  takes  inventory  and  finds  that  the  merchandise 
still  on  hand  cost  him  $10. 

What  does  the  old  Merchandise  account  show  that  his 
profit  has  been? 


Net  Profit 

Suppose  you  are  bookkeeper  for  John  Smith. 
After  taking  inventory  on  December  31,  you  made 
a  trial  balance  which  appeared  as  follows: 


Cash  

Dr. 
$  60 

Cr. 

$  55 

Merchandise  (new  account) 
Merchandise  (old  account) 
John  Smith,  Proprietor  .... 
Rent  Expense  .  . 

20 
45 

10 

60 

20 

$135         $135 

(You  should  copy  this  trial  balance  on  your 
work  paper.) 

If  you  will  look  back  to  Lesson  6,  you  will  see 
that  at  the  time  inventory  was  taken  all  the  mer- 
chandise found  on  hand  was  taken  out  of  the  old 
Merchandise  account  and  placed  in  a  new  Mer- 
chandise account.  The  journal  entry  we  posted 
had  the  effect  of  subtracting  all  of  the  goods  ac- 
tually on  hand  out  of  the  old  account  and  adding 
them  to  the  new  account. 

Turning  to  the  present  example,  you  have  taken 
all  the  actual  merchandise  out  of  the  old  account, 

28 


PROFIT  AND  LOSS  ACCOUNT  29 

what  remains  in  the  account  must  be  profit.  The 
old  Merchandise  account  is  now  changed  from  an 
account  measuring  a  real  asset  to  an  account 
measuring  only  profit. 

After  the  inventory  was  posted,  the  old  Mer- 
chandise account  became  a  force  account,  showing 
the  profit  which  was  earned  on  the  sale  of 
merchandise. 

The  Rent  Expense  account  shows  the  amount 
that  the  force,  rent,  has  caused  John  Smith  to  pay 
out. 

The  difference  between  the  creditable  force, 
profit,  and  the  discreditable  force,  rent  expense, 
shows  the  net  profit.  Profit  has  brought  in  $15, 
while  rent  has  caused  John  Smith  to  pay  out  $10; 
his  net  earnings  have  been  $5. 

Profit  and  Loss 

Subtraction  in  bookkeeping  is  accomplished  by 
adding  to  the  opposite  side  of  the  account.  Thus 
if  we  have  a  Cash  account  showing  $60  on  hand : 

CASH 


Jan.  i     J. 


and  we  want  to  subtract  $10,  we  add  the  $10  to  the 
opposite  side : 


30         TWENTY  LESSONS  IN  BOOKKEEPING 
CASH 


Jan.  I     J $60 


Jan.  2    J $10 


The  Cash  account  now  shows  that  we  have  $60 
less  $10,  or  $50,  on  hand. 

Remember  that  all  these  entries  in  the  ledger 
have  to  be  first  made  in  the  journal.  Every  entry 
is  made  first  in  the  journal  and  from  there  posted 
to  the  ledger. 

If  we  can  bring  all  the  force  accounts  together, 
those  with  a  credit  balance  on  one  side  and  those 
with  a  debit  balance  on  the  other,  their  difference 
will  show  the  net  profit  earned,  or  possibly  the  net 
amount  lost. 

We  can  bring  these  accounts  together  easily  by 
opening  a  new  ledger  account  called  "Profit  and 
Loss." 

This  is  done  in  most  businesses  at  the  end  of 
each  year. 

Closing  into  Profit  and  Loss 

There  are  already  two  force  accounts  in  John 
Smith's  ledger : 

MERCHANDISE  (old  account) 


Apr.  6    J $45 


Apr.     7    J $40 

Dec.  31     J  (inv.) 20 


PROFIT  AND  LOSS  ACCOUNT 
RENT  EXPENSE 


Apr.  7    J $10 


In  order  to  get  the  debit  balance  of  $10  shown 
in  the  Rent  Expense  account  into  Profit  and  Loss, 
you  make  the  following  journal  entry: 


Dec.  31 

Profit  and  Loss 

Rent  Expense 

Closing  out  Rent  Expense  account. 


$10 


$10 


Posting  this  entry,  the  $10  debit  entry  will 
appear  on  the  debit  side  of  the  Profit  and  Loss 
account,  and  the  $10  credit  will  appear  on  the 
credit  side  of  the  Rent  Expense  account,  making 
the  Rent  Expense  account  balance;  that  is,  it  will 
have  the  same  amount  on  both  debit  and  credit 
sides.  When  an  account  thus  balances  it  is  spoken 
of  as  closed  and  no  further  attention  is  paid  to  it. 

In  order  to  get  the  credit  balance  of  the  Mer- 
chandise account  into  Profit  and  Loss  account,  the 
journal  entry  is : 


Dec.  31 

Merchandise  (old  account) , 

Profit  and  Loss 

profit  into  Profit  and  Loss. 


$15 


$15 


32         TWENTY  LESSONS  IN  BOOKKEEPING 

Posting  these  two  entries,  the  ledger  accounts 
appear  as  follows : 

PROFIT  AND  LOSS 


Dec.  31     Rent $10 


Dec.  31  Mdse $15 


MERCHANDISE  (old  account) 


Apr.    6    J $45 

Dec.  31     J 15 


Apr.    7    J $40 

Dec.  31     J 20 


RENT  EXPENSE 


Apr.    7    J $10      Dec.  31     J $10 

(Do  not  fail  to  copy  every  one  of  these  illus- 
trations.) 

Observe  that  when  an  account  with  Rent  Ex- 
pense has  $10  on  the  debit  side,  to  close  it  $10  has 
to  be  added  to  the  credit  side  in  order  to  make 
the  two  sides  equal.  The  $10  added  has  to  go 
through  the  journal.  When  you  make  a  credit 
entry  you  have  to  make  an  equal  debit  entry.  The 
debit  in  this  case  is  made  to  Profit  and  Loss. 

It  is  well  to  show  in  the  Profit  and  Loss  account 
where  the  debit  entries,  such  as  expense  and  rent, 
and  where  the  credit  entries,  such  as  merchandise, 
come  from. 


PROFIT  AND  LOSS  ACCOUNT  33 

The  Profit  and  Loss  account  of  John  Smith 
now  shows  a  credit  balance  of  $5.  Thus  we  see 
that  the  net  results  of  the  operation  of  the  business 
have  been  favorable,  the  net  earnings  being  $5. 

Jcfi       Problem  7 

Rule  a  Profit  and  Loss  account  on  your  work  paper. 
From  the  following  trial  balance  make  the  necessary  jour- 
nal entries  closing  all  the  force  accounts  mto  Profit  and 
Loss,  post  the  entries  to  Profit  and  Loss  account,  and 
show  the  net  amount  earned. 

Dec.  31 

Dr.  Cr. 

Cash $45               $30 

Merchandise  (old  account)  j-r-  25                 35   -      %  i  O 

Merchandise  (new  account)  20 

J.  Smith,  Proprietor 30          >i  £~ 

Salary  Expense -r»  5 

$95  $95 


Lesson  8 

BALANCE  SHEET  AND  PROFIT  AND  LOSS 
STATEMENT 

Trial  Balance  After  Closing 

In  the  preceding  lesson  you  closed  out  all  the 
force  accounts  into  Profit  and  Loss  and  found  that 
the  business  had  earned  a  net  profit  of  $5.  The  net 
profit,  of  course,  goes  to  the  credit  of  John  Smith, 
the  owner  of  the  business.  Hence  you  make  the 
following  journal  entry: 


Dec.  31 

Profit  and  Loss 

John  Smith,  Proprietor 

Closing  net  profit  into  proprietor's  account. 


When  you  have  posted  this  entry  to  the  ledger, 
all  profit  and  loss,  or  force,  accounts  are  balanced 
out.  You  now  take  a  trial  balance  of  the  remain- 
ing ledger  accounts,  which  will  appear  as  follows: 

Dr.  Cr. 

Cash $60  $55 

Merchandise 20 

John  Smith,  Proprietor.  ...  25 

$80  $80 

34 


BALANCE  SHEET  35 

Balance  Sheet 

This  trial  balance  has  none  but  real  accounts 
in  it.  That  is,  every  account  represents  so  much 
real  property  on  hand  or  owed.  There  is  $5  of 
cash  in  the  till,  $20  of  merchandise  on  the  shelves, 
and  the  business  owes  the  proprietor  $25.  If  you 
list  the  balances  in  these  real  accounts,  you  have  a 
balance  sheet.  The  balance  of  an  account  is  the 
difference  between  the  total  of  the  debits  and  the 
total  of  the  credits. 

A ssets 

Cash $  5 

Merchandise 20  $25 

Liabilities 
John  Smith,  Proprietor.  .  .  .       $25  $25 

At  the  end  of  the  year  the  owner  of  the  business 
wants  to  know  what  his  assets  and  liabilities  are. 
You  give  him  this  information  in  the  form  of  the 
above  balance  sheet,  made  up  from  the  real  ac- 
counts. 

Profit  and  Loss  Statement 

The  owner  also  wants  to  know  what  his  in- 
come and  expenses  have  been  for  the  year.  This 
information  you  get  from  the  force  accounts  which 
have  been  closed  into  Profit  and  Loss.  The  state- 


36         TWENTY  LESSONS  IN  BOOKKEEPING 

ment  you  make  up  showing  these  force  accounts  is 
called  a  "profit  and  loss  statement." 

To  prepare  a  profit  and  loss  statement,  it  is  only 
necessary  to  copy  the  entries  from  the  Profit  and 
Loss  account. 

From  the  credit  side  of  the  account  you  get  the 
income  items,  and  from  the  debit  side,  the  expenses. 

Income 

Merchandise  Profit $10 

Total  Income $10 

Expenses 

Rent  Expense $  5 

Total  Expenses 5 

Net  Profit $  5 

The  balance  sheet  shows  what  the  business  is 
worth  at  the  present  time,  while  the  profit  and  loss 
statement  shows  the  source  of  the  earnings  and  the 
cause  of  the  expenses. 

These  two  statements  are  made  up  when  the 
books  are  closed.  Closing  the  books  means  taking 
an  inventory,  opening  a  new  Merchandise  account, 
closing  all  the  force  accounts  into  Profit  and  Loss 
(as  was  done  in  Lesson  7),  and  then  closing  the 
Profit  and  Loss  account  into  the  proprietor's 
account.  The  books  are  usually  closed  at  the  end 
of  the  year. 


BALANCE  SHEET  37 

Problem  8 

From  the  following  trial  balance  prepare  a  Profit  an<r 
Loss  account,  closing  all  of  the  force  accounts  into  it,  and 
transfer  the  net  profit  to  the  proprietor.  Show  the  journal 
entries,  a  profit  and  loss  statement,  and  a  balance  sheet. 

Dr.  Cr. 

Cash $90            $50 

Merchandise 25 

Merchandise  (old  account)..  35,              55 

Salary  Expense 15 

Harry  Hayes,  Proprietor. . .  60 

$165  $165 


149798 


Lesson  9 
ACCOUNTS  PAYABLE  AND  RECEIVABLE 

Buying  on  Account 

We  have  now  learned  how  to  open  and  close  a 
set  of  books,  how  to  prepare  a  trial  balance,  a  profit 
and  loss  statement,  and  a  balance  sheet. 

Suppose  that  instead  of  purchasing  our  mer- 
chandise for  cash,  we  buy  $50  worth  from  Smith  & 
Co.,  on  30  days'  credit.  The  journal  entry  for  this 
transaction  would  be: 


Junes 


Merchandise . 


Smith  &  Co. 


Merchandise  purchased  on  30  days'  time. 


$50 


$50 


The  debit  of  this  entry  is  posted  on  the  debit 
side  of  the  Merchandise  account,  to  show  that  the 
storeman  is  now  responsible  for  $50  worth  of 
merchandise.  We  open  a  ledger  account  with 
Smith  &  Co.,  and  post  to  it  the  credit  of  the  entry: 

SMITH  &  CO. 

June  5    J $50 


ACCOUNTS  PAYABLE  AND  RECEIVABLE      39 


This  account  with  Smith  &  Co.  is  a  real  account, 
showing  that  the  business  is  hi  debt  to  Smith  &  Co. 
for  $50. 

If  we  pay  $30  on  account,  the  entry  will  be: 


June  7 


Smith  &  Co 

Cash $30 

Payment  on  account. 

This  entry  shows  that  $30  cash  has  gone  out  of 
the  business  on  account  of  debt  we  owe  Smith  &  Co. 

When  the  entry  is  posted,  the  Smith  &  Co. 
account  will  appear  as  follows: 

SMITH  &  CO. 
June  7    J $30      June  5    J $50 

The  account  continues  to  have  a  credit  balance 
showing  that  the  business  owes  Smith  &  Co.  $20. 

Selling  on  Account 

In  the  same  manner  we  may  sell  on  credit: 

June  8 

R.  E.  Brown $12 

Merchandise $12 

Sale  on  30  days'  time. 


40         TWENTY  LESSONS  IN  BOOKKEEPING 

We  open  a  ledger  account  with  R.  E.  Brown: 

R.  E.  BROWN 
JuneS    J $12 

The  debit  balance  of  $12  shows  that  Brown  is 
responsible  to  the  business  for  that  amount. 

Both  the  account  with  Smith  &  Co.  and  with 
Brown  are  real  accounts  and  hence,  at  the  time  the 
books  are  closed,  will  be  shown  on  the  balance 
sheet. 

Assets 
R.  E.  Brown $12 

Liabilities 
Smith  &  Co $20 

Problem  9 

Close  books,  making  the  necessary  journal  entries  am. 
ledger  accounts,  and  prepare  a  profit  and  loss  statement 
and  a  balance  sheet  from  the  following  trial  balance: 

Dec.  31  Dr.             Cr. 

Merchandise  (new account)..  $25 

Cash 20         $     15 

R.  L.  Jackson 30 

Merchandise  (old  account)...  35               55 

Rent  Expense f 15 

Jones  &  Co 35 

T.  Hart,  Proprietor 20 

$125  $125 


Lesson  10 
REVIEW  PROBLEM 

You  have  now  learned  the  fundamentals  of 
bookkeeping.  In  working  the  problem  given  below 
be  careful  of  the  following: 

1.  See  that  every  time  you  make  a  journal 
entry  the  same  amount  that  goes  into  the  credit 
column  goes  into  the  debit  column. 

2.  Be  careful  that  all  amounts  in  the  debit 
column  of  the  journal  are  posted  to  the  debit  side 
of  the  ledger  account,  and  that  all  amounts  in  the 
credit  column  of  the  journal  are  posted  to  the  credit 
side  of  the  ledger. 

3.  As  an  entry  is  posted  from  the  journal,  make 
a  check  mark  so  that  you  will  overlook  no  entry. 

4.  Before  closing  out  the  force  accounts  to 
Profit  and  Loss,  take  a  trial  balance. 

5.  In  taking  the  trial  balance  do  not  overlook 
any  account. 

6.  If  the  totals  of  the  debit  and  the  credit  sides 
are  not  equal,  do  not  proceed  further  until  you  have 
corrected  the  error. 

7.  Be  careful  to  close  every  force  account  into 
Profit  and  Loss,  making  a  journal  entry. 

8.  The  balance  sheet  should  balance;  total  assets 

41 


42         TWENTY  LESSONS  IN  BOOKKEEPING 

must  equal  total  liabilities,  the  proprietor's  account 
being  listed  as  a  liability. 

(Be  certain  to  work  the  problem.  Working  it  is 
absolutely  necessary  for  an  understanding  of  the 
lessons  which  follow.) 

Problem  10 

Prepare  the  journal,  ledger,  trial  balance,  balance  sheet, 
and  profit  and  loss  statement  for  the  example  given  below. 

Write  all  the  transactions  in  the  journal  before  starting 
to  post,  then  check  back  to  see  that  you  have  debited 
Cash  when  it  has  come  into  the  business  and  credited  it 
when  it  has  gone  out;  that  you  have  debited  Merchandise 
as  it  has  been  purchased  and  credited  it  as  it  has  been  sold. 

Mar.    i.  Harry  Smith  invests  $100  cash  in  the  grocery 

business. 

He  buys  a  store  building  for  $50  cash. 
"      2.  He  purchases  for  cash  20  sacks  of  flour  at  $i  & 

sack. 
He  purchases  $70  assorted  merchandise  on  30 

days'  time  from  Ross  &  Co. 

"      3.  Resells  10  sacks  of  flour  at  $1.25  a  sack  for  cash. 
He  sells  $40  merchandise  to  R.  E.  Colt  on  30 

days'  time. 
"      4.  He  sells  5  sacks  of  flour  at  $1.25  a  sack  for  cash. 

He  pays  salaries  of  $25  in  cash. 
"      5.  He  pays  an  electric  light  bill  ofx$2. 
"      6.  He  collects  $5  rent  for  the  use  of  part  of  his 

building. 

"    31.  He  takes  inventory  and  finds  on  hand  merchan- 
dise which  cost  $60. 


Lesson  n 
NOTES  PAYABLE  AND  RECEIVABLE 

Notes  Payable  Account 

A  promissory  note  is  a  written  promise  to  pay  a 
stated  sum  of  money  at  a  certain  time. 

April  17,  19-. 

Thirty  days  after  date  I  promise  to  pay  to  the  order 
of  James  Brown  fifteen  dollars  ($15.00)  for  value  received. 
(Signed)  R.  L.  Snow 

If  we  borrow  $110  from  the  bank,  giving  our 
30-day,  6%  note,  the  journal  entry  will  be: 


Apr.  20 


Cash. 


Notes  Payable 

3O-dayf  6%  note  to  First  National  Bank. 


$110 


$110 


After  posting,  the  ledger  accounts  will  show: 
CASH 


Apr.  20    J . , 


..     $no 

NOTES  PAYABLE 


Apr.  20    J $110 


43 


44 


TWENTY  LESSONS  IN  BOOKKEEPING 


(Do  not  forget  to  study  these  lessons  with  pencil 
in  hand  and  to  copy  every  illustration.) 

Notes  Payable  represents  a  liability  and  is  a 
real  account,  appearing  on  the  balance  sheet  when 
the  books  are  closed. 

Payment  of  Note 

On  payment  of  the  note  the  journal  entry  is  as 
follows: 


May  19 

Notes  Payable 

Interest  Expense 

Cash 

Payment  of  note   to   First   National 
Bank. 


$110.00 

•55 


$110.55 


We  obtain  the  amount  of  the  interest  by  figur- 
ing what  $i  10  at  6%  for  30  days  would  cost. 

After  posting  the  journal  entry  of  May  19, 
the  ledger  account  with  notes  payable  will  be  as 
follows: 

NOTES  PAYABLE 


May  19    J $110      Apr.  20    J 


$110 


The  account  is  "in  balance"  and  need  not  be 
shown  in  the  trial  balance  or  further  considered. 


NOTES  PAYABLE  AND  RECEIVABLE    45 

Notes  Receivable 

Suppose  that  J.  Tate  owes  us  $50  on  his  regular 
account: 

J.  TATE 


May  2    J $50 


He  is  unable  to  pay  the  $50  at  the  end  of  the 
month,  and  so  he  gives  us  a  $50,  6%  note  due  in  60 
days.  When  he  signs  a  note  we  consider  that  he 
has  paid  the  account  and  make  the  journal  entry 
as  follows: 


June  i 

Notes  Receivable 

J.  Tate $50 

6o-day  6%  note  given  in  settlement  of 
account. 

Posting  this  entry,  our  ledger  will  appear: 
NOTES  RECEIVABLE 


June  I     J. 


$5° 

J.  TATE 


May  2     J $ 50      June  I     J 


$50 


46         TWENTY  LESSONS  IN  BOOKKEEPING 

J.  Tate's  account  is  now  closed  and  we  have  in 
its  place  another  asset  account,  Notes  Receivable, 
which,  of  course,  goes  into  the  balance  sheet  as  a 
real  account. 

In  neither  the  Notes  Receivable  nor  the  Notes 
Payable  account  is  any  attention  paid  to  the  signer 
of  the  note  or  to  whom  it  is  payable.  A  note  pay- 
able to  the  First  National  Bank  will  be  posted  to  the 
same  account  as  one  payable  to  John  Jones. 

Problem  11 

Prepare  journal  entries  and  ledger  accounts  with  Cash, 
Notes  Payable,  Notes  Receivable,  Merchandise,  and 
Interest  Income  for  the  following  transactions: 

Jan.   5.  The  business  borrows  $40  on  a  go-day  6%  note. 
A  customer  buys  $30  merchandise  giving  his  do- 
day  6%  note  in  payment. 

Mar.  4.  The  customer  pays  his  note.    The  interest  for  6c 
days  at  6%  on  a  $30  note  is  30  cents. 


Purchase  Terms 

It  is  common  practice  to  buy  merchandise  with 
the  understanding  that  if  the  bill  is  paid  by  a  cer- 
tain date,  a  discount  will  be  granted. 

Thus,  we  buy  $100  merchandise  on  2%  3o-day 
terms.  These  terms  mean  that  if  the  bill  is  paid 
within  30  days,  we  will  have  to  remit  only  $98  in 
cash;  if  more  than  30  days  is  taken,  we  will  have  to 
pay  the  full  $100.  This  $2  is  thus  a  profit  which 
may  be  earned  by  prompt  payment. 

When  we  purchased  the  order,  the  entry  was : 


May  i 

Merchandise $100 

Hall  &  Co 

Merchandise  purchased  2%  30  days. 

When  the  bill  is  paid  the  entry  is : 


May  10 

Hall  &  Co 

Cash 

Discount  Income 

Payment  of  account  less  discount. 

47 


$100 


48         TWENTY  LESSONS  IN  BOOKKEEPING 

Actually  we  pay  out  only  $98  in  cash,  Hall  & 
Co.  having  agreed  to  accept  this  amount  in  full 
payment  for  the  order,  provided  we  remit  within 
30  days. 

Discount  Income 

Discount  income  is  posted  to  an  account  in  the 
ledger: 

DISCOUNT  INCOME 


May  10    J. 


At  the  end  of  the  year  when  we  close  the  books 
this  account  is  debited  for  the  total  of  the  credit 
side  and  Profit  and  Loss  account  is  credited  for  the 
same  amount: 


Dec.  31 

Discount  Income 

Profit  and  Loss 

Closing  into  Profit  and  Loss. 


Discount  Expense 

In  the  same  manner  we  may  offer  our  customers 
a  discount  of  2%  if  they  pay  by  the  loth  of  the 
month.  This  amount  is  an  expense  which  we  pay 


CASH  DISCOUNT  49 

in  order  to  get  our  money  in  promptly.   The  journal 
entry  is : 


June  10 


Cash 

Discount  Expense. 
J.  E.  Brown. 


Payment  of  account  less  discount. 


$9.80 
.20 


$10.00 


Brown  actually  pays  $9.80,  which  amount  we 
accept  in  full  payment  of  the  $10  debt. 

Discount  expense  then  goes  into  the  ledger  as 
follows : 


DISCOUNT  EXPENSE 


June  10    J $.20 


Bank  Discount 

When  we  borrow  money  on  a  note,  the  bank 
commonly  collects  the  interest  in  advance.  We 
wish  to  borrow  $100.  The  bank  takes  our  note  for 
this  amount  to  run  for  60  days  without  interest. 
But  in  place  of  giving  us  back  $100  in  cash,  we  are 
given  only  $98.  The  $2  difference  goes  to  the  bank 
and  is  known  as  bank  discount.  At  the  end  of  60 
days  we  have  to  pay  the  bank  $100. 


50         TWENTY  LESSONS  IN  BOOKKEEPING 
On  borrowing,  the  entry  is: 


Cash  

June  I 

$98 

2 

$IOO 

Discount  Expense     .  .  . 

Notes  Payable   . 

6o-day  note  discounted  at  bank. 

On  payment  the  entry  is: 


July  30 


Notes  Payable. 
Cash.  . 


Problem  12 


$100 


$100 


Prepare  journal  entries  and  ledger  accounts  for  the 
following : 

I  buy  $50  worth  of  merchandise  on  3o-day  2%  terms 
from  J.  Jones.  The  bill  is  paid  within  the  30  days. 

John  Hall  buys  $20  worth  of  merchandise  on  terms. 
He  pays  the  bill  before  the  loth  and  is  given  a  discount 
of  2%. 


Lesson  13 
CASH  BOOK 

Entry  of  Cash  Transactions 

If  a  business  has  many  cash  transactions,  it 
would  require  considerable  work  and  much  paper 
to  post  each  transaction  from  the  journal  to  the 
Cash  account. 

To  overcome  this  objection,  a  separate  book, 
known  as  the  "cash  book,"  is  employed  for  all 
transactions  involving  cash.  When  a  cash  book  is 
used,  transactions  involving  cash  are  not  entered 
in  the  journal,  but  are  first  shown  in  the  cash  book, 
as  shown  below,  and  posted  from  there  directly  to 
the  ledger. 

The  left-hand  page  is  used  for  the  debit  or 
receipt  side,  the  right-hand  page  for  the  credit  or 
payment  side. 

Debiting  Cash  Account 

At  the  end  of  the  day  we  debit  the  ledger  ac- 
count Cash  with  the  total  of  the  debit  side  of  the 
cash  book,  in  this  case  $260,  and  then  credit  each 
individual  account — Merchandise  account  with 
$50,  Rent  Income  with  $10,  and  J.  T.  Jeanes 
with  $200. 

Si 


52         TWENTY  LESSONS  IN  BOOKKEEPING 

Dr.  CASH 


Jan.  6 

Mdse  

$  so 

Rent  Income  

IO 

T.  T.  Teanes.  . 

2OO 

The  result  is  the  same  as  if  we  had  made  a  debit 
entry  in  the  journal  each  time  cash  was  received: 


Jan.  6 


Cash 

Mdse.  sales. 
Sales  for  cash. 


Cash 

Rent  Income 

Rent  for  half  of  store. 


Cash 

J.  T.  Jeanes 

Payment  on  account. 


$50 


10 


200 


10 


200 


If  we  made  the  entries  in  the  journal,  as  shown 
just  above,  it  would  be  necessary  to  post  to  the 
Cash  account  three  times,  but  by  the  use  of  the 
cash  book,  it  is  necessary  to  post  only  once. 

An  additional  advantage  is  that  it  is  possible  to 
tell  very  quickly  from  the  cash  book  how  much 
cash  is  on  hand,  even  though  we  might  be  several 
days  behind  in  posting  to  the  ledger. 


CASH  BOOK 


53 


BOOK 


Cr. 


Jan.  6 


Tax  Expense. 
Piper  &  Co. .  . 
Jones  &  Co. . 
Ins.  Expense. 
Brown  &  Co. , 


$12 
40 
55 


Crediting  Cash  Account 

After  posting  the  debit  side  of  the  cash  book  to 
the  ledger,  the  credit  side  is  added  and  the  total, 
which  is  $172,  is  posted  to  the  credit  side  of  the 
ledger  account  with  Cash.  Each  of  the  items,  tax 
expense  $12,  Piper  &  Co.  $40,  Jones  &  Co.  $55,  in- 
surance expense  $30,  and  Brown  &  Co.  $35,  is  posted 
to  the  debit  side  of  its  respective  ledger  account. 

When  an  item  goes  into  the  credit  side  of  the 
cash  book,  as: 


CASH  BOOK 


Cr. 


Jan.  6          Tax  Expense $12 

the  result  is  the  same  as  if  we  made  a  journal  entry: 


Jan.  6 

Tax  Expense 

Cash 

Payment  of  year's  taxes. 


$12 


$12 


54         TWENTY  LESSONS  IN  BOOKKEEPING 

We  post  the  total  of  the  credit  side  of  the  cash 
book  to  the  credit  of  the  ledger  account  with  Cash, 
but  the  individual  items,  such  as  tax  expense,  are 
posted  to  the  debit  side  of  their  ledger  accounts. 

Problem  13 

Prepare  a  cash  book  from  the  following  data  and  post 
the  various  entries  to  the  ledger: 

On  Jan.  8  the  business  receives  $100  cash  from  the  sale 
of  merchandise  and  $30  from  rent  income.  On  the  same 
day  it  pays  out  $25  for  insurance  expense,  buys  $30  mer- 
chandise for  cash,  and  receives  a  $15  payment  on  account 
from  Mrs.  Jackson. 


Lesson  14 

INDIVIDUAL  EXPENSE  AND  PROFIT 
ACCOUNTS 

Classifying  Expenses 

Suppose  that  instead  of  charging  interest,  rent, 
insurance,  and  other  expenditures  against  one 
expense  account,  we  wish  to  keep  these  several 
items  of  expense  separate  so  that  we  may  know  at 
the  end  of  the  year,  or  of  the  month,  how  much  we 
have  paid  out  for  rent,  how  much  for  interest,  etc. 

To  keep  track  of  these  several  items  it  is  only 
necessary  to  open  separate  ledger  accounts. 

Thus,  when  we  pay  $10  rent  the  old-fashioned 
journal  entry  will  be : 


Apr.  2 


Rent  Expense. 


Cash. 


$10 


$10 


After  posting,  the  ledger  account  shows: 
RENT  EXPENSE 


Apr.  2    J $ic 

55 


TWENTY  LESSONS  IN  BOOKKEEPING 


In  the  same  manner  we  may  have  ledger  ac- 
counts, Insurance  Expense  and  Interest  Expense. 


INSURANCE  EXPENSE 


Apr.  3    J . 


INTEREST  EXPENSE 


Apr.  4    J. 


In  addition  to  the  several  expense  accounts 
covering  the  more  common  expenditures,  there 
should  also  be  a  Miscellaneous  Expense  account  to 
save  opening  accounts  in  the  ledger  to  which  there 
might  be  only  one  entry  a  year. 

Closing  of  the  Accounts 

The  Rent,  Insurance,  and  Interest  Expense 
accounts  are  closed  out  to  Profit  and  Loss  at  the 
end  of  the  year,  just  as  we  previously  closed  the 
one  Expense  account. 


Dec.  31 

Profit  and  Loss 

Rent  Expense 

Closing  into  Profit  and  Loss  account. 


Profit  and  Loss 

Insurance  Expense 

Closing  into  Profit  and  Loss  account. 


$10 


$10 


EXPENSE  AND  PROFIT  ACCOUNTS  57 

It  is  better  practice  to  have  a  number  of  indi- 
vidual expense  accounts,  rather  than  one  general 
account.  With  an  account  for  every  important 
expense  we  can  tell  where  the  money  has  gone  and 
where  it  may  be  possible  to  save  money  during  the 
coming  year. 

In  the  same  way  we  may  have  a  number  of 
accounts  with  different  sources  of  income,  Rent 
Income,  Interest  Income,  etc. 

All  income  and  expense  accounts  are  force  ac- 
counts and  are  closed  out  to  Profit  and  Loss  at  the 
end  of  the  year,  before  the  balance  sheet  is  made  up. 

Problem  14 

Prepare  cash  book  entries,  journal  entries,  ledger 
accounts,  and  a  profit  and  loss  statement  covering  the 
following  transactions: 

July  i.  We  pay  out  $20  for  July's  rent. 
"    3.  We  pay  out  $12  in  salaries. 

We  receive  $6  in  interest. 
"    5.  We  pay  out  $7  for  truck  hire. 


Lesson  15 
PARTNERSHIP  ACCOUNTS 

Division  of  Profits 

When  two  partners  own  the  business,  the  net 
profits  may  be  divided  between  them  in  accordance 
with  any  arrangement  they  may  make. 

As  an  example,  suppose  at  the  end  of  the  year 
we  figure  up  the  Profit  and  Loss  account  and  dis- 
cover that  the  business  has  earned  $200.  If  the 
agreement  is  that  the  profits  be  divided  equally 
between  the  two  partners,  A  and  B,  the  journal 
entry  is: 


Dec.  31 


Profit  and  Loss. 


A's  Account. 
B's  Account. 


Distribution  of  profits. 


$200 


$100 
100 


This  distribution  of  profits  is  made  when  the 
books  are  closed  at  the  end  of  the  year. 

The  partnership  agreement  may  provide  that 
profits  are  to  be  divided  according  to  the  amount  of 
capital  each  partner  has  in  the  business  at  the  time 
of  closing  the  books.  A  has  $750  invested  as  shown 

58 


PARTNERSHIP  ACCOUNTS 


59 


by  his  account,  and  B  $250.  The  profits  are,  then, 
to  be  divided  so  that  A  will  get  three  times  as  much 
as  B,  and  the  entry  is: 


Dec.  31 


Profit  and  Loss $200 

A's  Account $150 

B's  Account 50 

Distribution  of  profits. 

Accounts  After  Posting 

After  the  posting  of  this  entry  A's  account  will 
appear  as  follows: 

A'S  ACCOUNT 

Apr.    5    J $750 

Dec.  31     J 150 

Now,  A  may  want  to  draw  $100  of  these  profits 
for  his  personal  use.    The  entry  is  then : 

Dec.  31 

A's  Account $100 

Cash $100 

Money  drawn  for  personal  use. 


(Keep  up  the  habit  of  copying  each  illustration 


60         TWENTY  LESSONS  IN  BOOKKEEPING 

on  your  scratch  paper.    It  is  a  habit  that  makes 
learning  easier.) 

After  posting  of  this  withdrawal,  A's  account 
appears  as  follows,  showing  that  his  interest  in  the 
business  is  now  the  difference  between  the  debit 
and  credit  sides  of  the  account,  or  $800: 

A'S  ACCOUNT 


Dec.  31     J $100 


Apr.    5    J $750 

Dec.  31     J 150 


Distribution  of  Losses 

Losses  are  usually  distributed  on  the  same  basis 
as  gains. 

Suppose  that  in  place  of  a  profit  the  Profit  and 
Loss  account  shows  a  loss,  appearing  as  follows: 

PROFIT  AND  LOSS 


Apr.  30    Mdse $300 


Apr.  30    Rent $125 

Supplies  —  75 
Delivery 

Expenses.  100 

Salary  Exp. .  200 


The  Profit  and  Loss  account  now  shows  that  the 
business  has  lost  $200.  We  distribute  this  loss  to 
AandB: 


PARTNERSHIP  ACCOUNTS 


61 


Dec.  31 


A's  Account 

B's  Account 

Profit  and  Loss .  .  . 
Distribution  of  losses. 


$150 
50 


$200 


When  this  entry  is  posted  A's  account  will  have 
a  net  credit  balance  of  only  $600.  This  will  be 
what  his  interest  in  the  business  is  worth. 

Problem  15 

Close  the  following  force  accounts  into  Profit  and  Loss, 
and  distribute  the  net  profit  or  the  net  loss  to  A  and  B, 
2/3  to  A  and  1/3  to  B. 

Dr.  Cr. 

Rent  Income $100 

Merchandise  Profit  (old  account)  300 

Insurance  Expense $  50 

Salaries. .  200 


Lesson  16 
CORPORATION  ACCOUNTS 

Capital  Stock 

In  case  the  business  is  owned  by  a  corporation  in 
place  of  one  man  or  several  partners,  we  merely 
substitute  the  account  Capital  Stock  for  the  pro- 
prietors' accounts. 

Thus,  if  A,  B,  and  C  are  in  partnership,  the 
balance  sheet  is  as  follows : 

Assets 

Merchandise $500 

Accounts  Receivable 100    $600 

Liabilities 
Proprietors'  Accounts: 

A's  Account $200 

B's  Account 200 

C's  Account 200    $600 

If  in  place  of  a  partnership  a  corporation  is 
formed,  the  balance  sheet  is: 

Assets 

Merchandise $500 

Accounts  Receivable 100    $600 

Liabilities 
Capital  Stock $600    $600 

62 


CORPORATION  ACCOUNTS  63 

A  corporation  goes  on  no  matter  who  holds  the 
shares  of  stock.  So  the  names  of  the  individual 
stockholders  do  not  appear  on  the  balance  sheet. 
There  may  be  thousands  of  them. 

With  a  partnership,  however,  should  one  mem- 
ber die  or  drop  out,  the  partnership  goes  out  of 
existence.  If  the  business  is  to  be  continued,  a  new 
partnership  or  some  other  arrangement  must  be 
made. 

Surplus  Account 

Now,  if  the  business  were  to  earn  $300  profit, 
with  the  partnership  form  we  would  merely  add 
one-third  of  this  amount  to  the  credit  of  each 
proprietor,  making  their  individual  interests  worth 
$300,  or  a  total  of  $900. 

With  a  corporation  the  amount  of  stock  is  fixed 
by  law;  in  the  present  case  it  would  be  $600.  To 
indicate  the  increase  of  the  stockholders'  interest 
due  to  the  earnings,  another  account  known  as 
Surplus  is  opened  to  which  the  profit  is  credited : 

Assets 

Cash $450 

Merchandise 350 

Accounts  Receivable 100    $900 

Liabilities 

Capital  stock $600 

Surplus 300     $900 


64         TWENTY  LESSONS  IN  BOOKKEEPING 
The  journal  entry  is : 


Dec.  31 

Profit  and  Loss 

Surplus $300 

Closing  Profit  and  Loss  into  surplus. 

Should  we  want  to  pay  out  $100  to  the  stock- 
holders in  dividends,  the  entry  is: 

Dec.  31 

Surplus $100 

Cash $100 

Payment  of  dividends. 

The  total  of  the  Capital  Stock  and  of  the  Surplus 
accounts  shows  the  value  of  the  business.  The  two 
together  really  make  one  Proprietorship  account. 

Deficit  Account 

Should  there  be  a  loss  in  place  of  a  profit,  it  is 
necessary  to  open  a  Deficit  account: 

Dec.  31 

Deficit $100 

Profit  and  Loss $100 

Closing  out  Profit  and  Loss. 


CORPORATION  ACCOUNTS  65 

The  Deficit  account  would  then  go  on  the 
balance  sheet  on  the  asset  side: 

Assets 

Merchandise $400 

Accounts  Receivable 100 

Deficit 100    $600 

Liabilities 
Capital  Stock $600    $600 

The  deficit  is,  of  course,  not  an  asset,  but  must 
be  put  on  the  asset  side  in  order  to  make  the  books 
balance.  To  find  the  jcal  w^prjtli  of  the  business  we 
must  subtract  the  deficit  from  the  capital  stock. 

Problem  16 

From  the  following  trial  balance,  close  out  the  force 
accounts  to  Profit  and  Loss  and  then  prepare  a  balance 
sheet.  Remember  that  only  real  accounts  go  into  the 
balance  sheet. 

Dr.  Cr. 

Merchandise  (old  account) $100 

Merchandise  (new  account) $300 

Accounts  Receivable 200 

Accounts  Payable 60 

Rent  Income 40 

Insurance  Expense 50 

Salary  Expense 80 

Capital  Stock 400 

Surplus 30 

$630          $630 


Lesson  17 
DEPRECIATION  EXPENSE 

Charging  Off  for  Depreciation 

If  we  pay  out  $500  cash  for  an  automobile  the 
ledger  shows  it  to  be  worth  $500: 

AUTO 


Jan.  5    J. 


$500 


Suppose  we  figure  that  the  automobile  will  be 
worthless  at  the  end  of  five  years.  At  the  end  of  the 
first  year  one-fifth  of  its  value  has  been  used,  and 
the  automobile  is  now  worth  to  us  only  $400.  It 
has  depreciated  $100.  We  make  a  journal  entry: 


Dec.  31 

Depreciation  Expense , 

Auto 

Annual  depreciation  on  auto. 


$100 


$100 


Posting  the  entry,  we  have  the  following: 

DEPRECIATION  EXPENSE 
Dec.  31    J $100 


66 


DEPRECIATION  EXPENSE  67 

AUTO 


Jan.     5    J $500 


Dec.  31     J $100 


Depreciation  is  an  expense  account  just  as  much 
as  rent  or  insurance.  The  wearing  out  of  a  machine 
causes  us  loss  of  money  just  as  surely  as  paying 
rent  for  a  place  for  storing  it  does. 

We  close  the  Depreciation  account  on  closing 
the  books  into  Profit  and  Loss. 


Dec.  31 


Profit  and  Loss. 


Depreciation 

Closing  into  Profit  and  Loss. 


$100 


The  automobile,  which  is  a  year  old  now,  ap- 
pears in  our  balance  sheet  as  worth  $400. 

Rates  of  Depreciation 

Depreciation  is  figured  at  different  rates  for 
different  objects  according  to  the  length  of  time 
they  are  likely  to  be  useful  to  the  business.  Thus, 
it  might  be  figured  that  a  brick  building  will  last 
for  50  years,  in  which  case  we  figure  the  deprecia- 
tion at  2%.  Store  fixtures  might  be  worthless  to 
the  business  after  10  years.  We  therefore  figure  the 
depreciation  at  10%.  After  the  first  year  the  fix- 


68         TWENTY  LESSONS  IN  BOOKKEEPING 

tures  which  originally  cost  $100  show  on  the  balance 
sheet  as  worth  $90,  the  second  year  as  worth  $80, 
and  so  on  until  they  are  ready  to  be  scrapped  at  the 
close  of  10  years,  when  they  no  longer  appear  on  the 
balance  sheet  as  an  asset. 

Problem  17 

We  have  a  building  costing  $1,000,  which  we  believe 
will  be  worthless  in  25  years;  store  fixtures  costing  $500, 
on  which  the  depreciation  is  10%  a  year;  and  an  automo- 
bile costing  $800,  on  which  the  depreciation  is  20%. 
Open  a  Depreciation  account  and  charge  the  depreciation 
for  the  first  year;  then  close  the  Depreciation  account  into 
Profit  and  Loss.  Show  journal  entries  and  all  ledger 
accounts. 


Lesson  18 

ACCRUALS  AND  PREPAYMENTS 
Accrued  Interest  Payable 


Suppose  we  borrow,  on  January  10,  1921, 
$10,000  at  8%  interest  for  one  year.  We  close  the 
books  on  December  31,  1921,  but  as  the  debt  is  not 
due  for  10  days  we  have  made  no  expenditure  for 
interest.  Suppose  we  make  no  entry  on  our  books 
to  show  that  the  use  of  $10,000  for  over  n  months 
has  cost  us  something. 

On  January  10,  1922,  we  pay  the  bank  $800  in 
interest,  and  if  the  entry  is  made  thus : 


Jan.  10  (1922) 

Interest  Expense 

Cash 

Payment  of  8%  interest  on  $10,000. 


at  the  close  of  business  in  1922  our  books  will  show 
an  expense  for  interest  of  $800,  though  we  have 
only  had  the  use  of  the  money  for  10  days  in  that 
year. 

Thus,  in  1921  our  books  show  us  an  apparent 
profit  of  $700,  when,  if  we  were  to  figure  in  our 

69 


70         TWENTY  LESSONS  IN  BOOKKEEPING 

interest,  it  would  be  found  that  we  had  lost  money. 
Our  books,  therefore,  do  not  show  the  actual  earn- 
ings of  the  business  during  that  year. 

Entry  at  Closing  of  Books 

On  December  31,  1921,  we  owe  $777.78  interest 
at  8%  on  $10,000  for  n  months  and  20  days.  We 
owe  this  amount  just  as  much  as  we  owe  a  bill  for 
merchandise,  and  to  show  itvwe  set  up  an  account, 


Dec.  31  (1921) 

Interest  Expense 

Accrued  Interest  Payable 

Accrued  interest  $10,000  n  months, 
20  days,  8%. 


$777.78 


$777-78 


This  entry  is  made  at  the  end  of  the  year,  just 
before  closing  the  books. 

Posting  the  entry  we  have  the  following: 


INTEREST  EXPENSE 


Dec.  31    J $77778 

ACCRUED  INTEREST  PAYABLE 


Dec.  31    J $77778 


ACCRUALS  AND  PREPAYMENTS  71 

Interest  expense  is  closed  out  to  Profit  and  Loss: 


Dec.  31  (1921) 

Profit  and  Loss , 

Interest  Expense , 

Closing  into  Profit  and  Loss. 


$777-78 


$777-78 


Accrued  Interest  Payable  goes  into  the  balance 
sheet  the  same  as  would  an  account  with  our  whole- 
salers, James  &  Co.,  whom  we  owed  $700  for 
merchandise. 

When  we  pay  the  $800  interest  on  January  10, 
1922,  $777.78  of  the  amount  goes  to  pay  off  this 
last  year's  debt  for  interest  accrued  and  the  re- 
maining $22.22  is  a  charge  against  interest  expense 
for  the  current  year,  being  interest  at  8%  on 
$10,000  from  January  i  to  January  10. 

The  journal  entry  is: 


Jan.  10  (1922) 

Interest  Expense 

Accrued  Interest  Payable 

Cash 

Interest  $10,000  I  year,   8%  paid. 


$  22.22 

777.78 


$800.00 


Posting  this  entry,  we  have  interest  expense  for 
1922  of  $22.22,  while  our  debt  for  $777.78  has  been 
balanced  off. 


TWENTY  LESSONS  IN  BOOKKEEPING 


By  this  method  of  accruals  the  books  show  the 
actual  profit  or  the  actual  loss  for  the  year. 

In  the  same  way  that  we  may  have  an  accruing 
expense  or  charge  we  may  also  have  an  accruing 
asset.  Thus,  if  we  were  the  bank  the  accrued  in- 
terest  of  $777.78  would  be  an  asset,  and  the  entry 
would  be  reversed: 


Dec.  31  (1921) 

Accrued  Interest  Receivable 

Interest  Income. . 


$777.78 


$777-78 


Prepaid  Insurance 

Suppose  that  on  December  i,  1921,  we  paid  a 
fire  insurance  premium  of  $120  to  protect  the  store 
until  November  30,  1922. 

The  entire  $120  should  not  be  charged  against 
the  profits  for  1921,  because  during  1921  we  have 
received  protection  for  only  one  month,  or  1/12  of 
the  full  amount. 

Instead  of  charging  the  $120  to  Insurance 
Expense,  we  therefore  charge  it  to  Prepaid  In- 
surance. 


Dec.  i  (1921) 

Prepaid  Insurance 

Cash 

Insurance  paid  i  year  in  advance. 


$120 


$120 


ACCRUALS  AND  PREPAYMENTS  73 

This  $120  worth  of  insurance  is  an  asset  just  the 
same  as  $120  worth  of  flour.  If  we  were  to  sell  the 
business  the  day  we  paid  for  the  insurance,  the 
purchaser  would  be  willing  to  pay  us  $120  more  for 
the  business.  If  we  did  not  have  this  insurance 
paid  for,  the  new  owner  would  have  to  pay  the  $120 
at  once.  Prepaid  Insurance  is  a  real  account  and 
goes  into  the  balance  sheet  at  the  end  of  the  year 
as  an  asset. 

Adjustment  at  End  of  Year 

At  the  end  of  December  we  have  used  up  1/12, 
or  $10  worth,  of  this  insurance.  It  is  evident  that 
the  insurance  prepaid  is  now  worth  only  $110.  So 
we  make  the  entry : 


Dec.  31  (1921) 


Insurance  Expense. 


Prepaid  Insurance. 


Cost  of  insurance  December  i  to  Decem- 
ber 31. 


$10 


$10 


Posting  this  entry  we  have  the  following: 

INSURANCE  EXPENSE 
Dec.  31     J $10 


74         TWENTY  LESSONS  IN  BOOKKEEPING 

PREPAID  INSURANCE 
Dec.    i     J $120      Dec.  31     J $10 

Our  prepaid  insurance  will  now  show  on  the 
balance  sheet  as  an  asset  worth  $110. 

Assets 

Cash $   500 

Merchandise 1 ,000 

Prepaid  Insurance no    $i  ,610 

Liabilities 

Accounts  Payable $   300 

Accrued  Interest  Payable.  ...  60 

Capital  Stock 1,100 

Surplus 150    $1,610 

Problem  18 

On  July  i  we  borrow  $1,000  at  6%  for  one  year. 

On  November  i  we  pay  $60  insurance  premium  for  the 
ensuing  year. 

Set  up  Prepaid  Insurance,  Accrued  Interest  Payable, 
Insurance  Expense,  and  Interest  Expense  accounts. 
Make  entries  required  December  31  before  closing  books, 
and  post  to  ledger. 


Lesson  19 
GENERAL  REVIEW  PROBLEM 

Using  the  following  transactions  prepare  a  cash  book, 
journal,  ledger,  and  trial  balance  before  closing: 

Dec.    i.  Harry  White  invests  $1,500  cash  in  a  grocery 

business. 
He  pays  out  in  advance  $120  for  one  year's 

premium  on  a  fire  insurance  policy. 
"      2.  He  buys  $300  merchandise  for  cash. 

He  buys  $900  merchandise  from  Smith  &  Co.  on 

2%,  lo-day  terms. 
"      3.  He  sells  $50  merchandise  to  Mrs.  Brown  on  30 

days'  time. 

"    ii.  He  pays  Smith  &  Co.,  less  2%  discount. 
"    31.  He  pays  $200  in  wages. 

He  sells  $800  merchandise  for  cash. 
He  pays  $55  rent  for  December. 
He  takes  inventory  and  finds  that  he  has  mer- 
chandise on  hand  which  cost  $700. 

In  the  transaction  of  December  n,  Smith  &  Co.  are  not 
paid  $900  in  cash,  but  that  amount  less  2%  discount.  The 
discount  is  entered  in  the  journal,  debiting  Smith  &  Co. 
for  $18  and  crediting  Purchase  Discount.  The  actual 
cash  paid  out  is  entered  on  the  credit  side  of  the  cash  book. 

On  completion  of  the  cash  book,  the  total  debit  side  is 
posted  as  a  single  item  to  the  debit  side  of  the  ledger  ac- 
count with  Cash.  The  total  of  the  credit  side  of  the  cash 

75 


76         TWENTY  LESSONS  IN  BOOKKEEPING 

book  is  posted  to  the  credit  side  of  the  ledger  account  with 
Cash. 

All  transactions  in  which  cash  either  comes  in  or  goes 
out  of  the  business  are  entered  in  the  cash  book  and  not  in 
the  journal.  Only  those  transactions  go  in  the  journal 
which  do  not  affect  the  amount  of  cash  on  hand. 


Lesson  20 
GENERAL  REVIEW  PROBLEM  (Continued) 

Make  the  closing  entries  in  the  accounts  of  the  preced- 
ing lesson,  and  prepare  trial  balance  after  closing,  balance 
sheet,  and  profit  and  loss  statement. 


77 


Appendix  A 
TWENTY  "POINTERS"  ON  BOOKKEEPING 

1.  Every  entry  is  first  made  in  a  cash  book,  journal, 
or  similar  book,  and  from  there  it  is  posted  to  the  ledger. 
No  entries  are  made  directly  in  the  ledger. 

2.  Every  time  you  make  a  debit  entry  you  should 
also  make  an  equal  credit  entry. 

3.  The  total  of  the  debit  column  in  the  journal  should 
always  equal  the  total  of  the  credit  column. 

4.  Every  item  in  the  debit  column  of  the  journal  is 
posted  to  the  debit  side  of  a  ledger  account;  every  item  in 
the  credit  column  of  the  journal  is  posted  to  the  credit  side 
of  a  ledger  account. 

5 .  As  every  item  in  the  journal  is  posted  to  the  ledger, 
the  total  of  the  debits  in  the  latter  book  should  always 
equal  the  total  of  the  credits.    This  is  proved  by  taking  a 
trial  balance. 

6.  All  transactions  in  which  cash  comes  in  or  goes  out 
of  the  business  are  entered  directly  in  the  cash  book  and 
not  in  the  journal. 

7.  The  total  of  the  debit  page  of  the  cash  book  is 
posted  to  the  debit  side  of  the  Cash  account  in  the  ledger. 
The  individual  entries  on  the  debit  page  are  posted  directly 
to  the  credit  side  of  their  respective  ledger  accounts.    The 
credit  side  of  the  cash  book  is  posted  as  a  single  item  to  the 
credit  side  of  the  ledger  account  with  Cash,  while  the  in- 
dividual entries  on  the  credit  page  are  posted  to  the  debit 
side  of  their  respective  ledger  accounts. 

8.  We  debit  an  account  when  an  asset  comes  into  the 

79 


80  APPENDIX 

business,  and  credit  the  account  when  an  asset  goes  out  of 
the  business. 

9.  We  give  credit  to  a  "  force, "  such  as  interest  income, 
which  brings  an  asset  into  the  business;  we  debit  the  force 
account  (hold  it  responsible)  which  takes  an  asset  out  of 
the  business. 

10.  The  books  are  closed  at  regular  intervals,  at  least 
once  a  year. 

11.  Real  accounts  are  not  closed  out  at  the  end  of  the 
year,  but  all  force  accounts  must  be  closed  out. 

1 2.  To  close  a  force  account  at  the  end  of  the  year,  add 
enough  to  either  the  debit  or  credit  side,  whichever  is  the 
smaller,  to  make  the  two  sides  equal.     If  it  is  necessary  to 
add  to  the  debit  side,  make  a  journal  entry  debiting  the 
force  account  and  crediting  Profit  and  Loss.    When  the 
credit  side  of  the  force  account  is  the  smaller,  debit  Profit 
and  Loss  and  credit  the  force  account. 

13.  Before  closing  the  books  of  a  mercantile  business  it 
is  necessary,  first,  to  take  an  inventory,  and  then,  through 
the  journal,  to  debit  a  new  Merchandise  account  with  the 
amount  of  the  inventory  and  credit  the  old  Merchandise 
account. 

14.  Just  prior  to  the  closing  of  the  books,  depreciation 
is  charged  off  on  furniture  and  fixtures,  buildings,  and 
similar  assets  subject  to  wear.    This  entry  is  made  through 
the  journal. 

15.  Any  accrued  interest  or  expired  insurance  is  entered 
on  the  books  through  the  journal,  prior  to  closing. 

1 6.  At  the  end  of  the  year  all  force  accounts  are  closed 
out  to  a  Profit  and  Loss  account,  and  the  Profit  and  Loss 
account  itself  is  then  closed  out  to  either  the  Surplus  or  the 
Proprietorship  accounts. 

17.  The  profit  and  loss  statement  is  made  from  the 


TWENTY  "POINTERS"  ON  BOOKKEEPING     8l 

Profit  and  Loss  account  after  the  books  have  been  closed. 
The  entries  on  the  debit  side  show  expense,  while  the  en- 
tries on  the  credit  side  show  income. 

1 8.  The  balance  sheet  is  made  up  from  the  trial  balance 
taken  after  the  books  are  closed.    This  trial  balance  shows 
no  accounts  except  real  accounts.    Real  accounts  which 
show  a  debit  balance  go  on  the  asset  side  of  the  balance 
sheet,  and  real  accounts  which  show  a  credit  balance  go  on 
the  liability  side  of  the  balance  sheet. 

19.  A  trial  balance  can  be  taken  at  any  time.    If  your 
work  is  correct,  the  total  of  the  debits  will  equal  the  total 
of  the  credits. 

20.  When  the  debits  and  credits  in  a  ledger  account 
are  equal,  you  need  pay  no  more  attention  to  that  account. 
It  is  said  to  be  closed. 

6 


Appendix  B 
DEFINITIONS   OF  BOOKKEEPING  TERMS 

ACCEPTANCE.  So  far  as  bookkeeping  is  concerned,  an 
acceptance  is  a  promissory  note. 

ACCOUNT.  A  heading  in  the  ledger  under  which  similar 
debits  and  credits  are  grouped,  as  an  expense  account, 
Cash  account,  Real  Estate  account,  etc. 

ASSET.  An  asset  is  something  of  value  which  belongs 
to  the  business;  something  which  would  ordinarily  induce  a 
purchaser  of  the  business  to  pay  more  than  if  the  item  did 
not  exist. 

BALANCE  or  AN  ACCOUNT.  The  balance  of  an  account 
is  the  difference  between  the  debits  and  credits.  If  the 
debits  are  the  larger,  the  account  is  said  to  have  a  debit 
balance;  if  the  credits  are  the  larger,  the  account  is  said 
to  have  a  credit  balance. 

BALANCE  SHEET.  As  commonly  used,  the  term 
"balance  sheet"  means  a  statement  of  assets  and  of  liabili- 
ties as  given  by  the  books.  A  balance  sheet  is  presumed  to 
show  the  actual  worth  of  a  business  at  a  definite  time. 

BILLS  PAYABLE.  This  account  represents  the  amount 
owed  by  the  business  on  outstanding  promissory  notes. 
The  terms  "bills  payable"  and  "notes  payable"  are 
usually  used  interchangeably. 

CASH  BOOK.  The  cash  book  is  a  book  of  original  entry 
in  which  all  transactions  where  cash  either  comes  in  or 
goes  out  of  the  business  are  entered.  Two  pages  are  used: 
the  left-hand,  or  debit  page,  is  for  the  cash  coming  in; 
while  the  right-hand,  or  credit  page,  is  for  cash  going  out. 

82 


DEFINITIONS  OF  BOOKKEEPING  TERMS     83 

CHARGING  AN  ACCOUNT.  Charging  an  account  means 
making  a  debit  entry  to  that  account. 

CHARGING  OFF.  Charging  off  an  account  means  credit- 
ing an  asset  account  with  sufficient  to  close  the  account, 
debiting  Profit  and  Loss.  All  such  entries  are  first  made  in 
the  journal.  An  asset  is  charged  off  when  it  is  no  longer 
considered  valuable.  This  happens  in  the  case  of  an  ac- 
count which  cannot  be  collected. 

CLOSING  THE  BOOKS.  Closing  the  books  refers  to  the 
closing  out  of  all  force  accounts  to  the  Profit  and  Loss 
account,  and  of  that  account  to  the  proprietor  or  to  a 
surplus  account.  The  books  are  closed  at  regular  intervals, 
usually  once  a  year. 

CREDIT.  In  bookkeeping  credit  is  a  term  used  to  repre- 
sent the  right-hand  side  of  an  account.  Real  accounts 
showing  a  credit  balance  represent  a  liability,  while  in  the 
case  of  force  accounts  a  credit  balance  measures  income. 

DEBIT.  Debit  is  a  term  used  to  represent  the  left-hand 
side  of  a  ledger  account.  Real  accounts  with  a  debit 
balance  stand  for  assets,  while  force  accounts  with  a  debit 
balance  represent  expenses. 

DRAFT.  A  draft  is  an  order  on  someone  to  pay  a  definite 
sum  of  money.  After  being  accepted  it  is  treated  in  book- 
keeping the  same  as  a  promissory  note. 

FINANCIAL  STATEMENT.  The  balance  sheet  and  the 
profit  and  loss  statement  are  both  financial  statements. 
The  term  is  often  used  to  mean  the  balance  sheet  only. 

FORCE  ACCOUNTS.  A  force  account  is  an  account  which 
measures  either  income  or  expense  during  a  definite  period. 
It  represents  neither  an  asset  nor  a  liability. 

JOURNAL.  The  journal  is  a  book  with  two  parallel 
columns  down  the  right-hand  side  of  the  page,  the  first 
known  as  the  debit  column  and  the  second  as  the  credit 


84  APPENDIX 

column.  Transactions  are  written  in  the  journal  as  they 
occur,  one  after  another,  the  debit  entries  being  written 
first  and  the  credit  entries  on  the  line  below.  There  is 
always  an  equal  credit  written  for  every  debit. 

LEDGER.  The  ledger  is  a  book  with  a  page  or  part  of  a 
page  for  each  account,  on  which  all  entries  concerning  that 
account  are  transferred  from  the  journal  or  from  the  other 
books  of  original  entry. 

LIABILITY.  A  liability  is  a  debt  owed  by  the  business. 

Loss  AND  GAIN  ACCOUNT.  This  is  another  name  for 
the  Profit  and  Loss  account. 

NOMINAL  ACCOUNTS.  This  is  another  name  for  force 
accounts. 

NOTES.  This  is  a  shortened  expression  for  promissory 
notes. 

OPEN  ACCOUNT.  An  open  account  is  a  ledger  account 
in  which  the  debits  do  not  equal  the  credits.  The  account 
is  closed  by  making  the  two  equal. 

POSTING.  Posting  is  the  act  of  transferring  entries  from 
the  journal,  or  other  books  of  original  entry,  to  the  ledger. 

PROFIT  AND  Loss  ACCOUNT.  The  Profit  and  Loss  ac- 
count is  a  ledger  account  into  which  all  force  accounts  are 
closed  at  regular  periods,  and  with  this  done  the  Profit  and 
Loss  account  is  itself  closed  out.  There  are  usually  few,  if 
any,  entries  to  the  Profit  and  Loss  account  except  at  the 
time  the  books  are  being  closed. 

PROMISSORY  NOTE.  A  promissory  note  is  a  written, 
unqualified  promise  to  pay  a  definite  sum  of  money  at  a 
definite  time. 

PURCHASE  BOOK.  The  purchase  book  is  a  form  of  the 
journal  used  to  record  purchases.  It  is  not  used  in  this  set. 

REAL  ACCOUNTS.  A  real  account  represents  an  actual 
asset  or  an  actual  liability;  something  that  is  definite 


DEFINITIONS  OF  BOOKKEEPING  TERMS     85 

and  makes  the  business  either  more  valuable  or  less 
valuable. 

SALES  BOOK.  The  sales  book  is  a  form  of  the  journal 
used  for  recording  sales.  It  is  not  used  in  this  set. 

TRIAL  BALANCE.  A  trial  balance  is  a  list  of  all  the  open 
ledger  accounts,  showing  either  the  total  of  the  debits  and 
the  total  of  the  credits,  or  the  debit  or  credit  balances,  the 
debits  and  credits  being  arranged  in  parallel  columns  and 
the  two  columns  totaled  to  see  that  they  agree. 


Appendix  C 

ANSWERS  TO  PROBLEMS 

Answer— Problem  i 

JOURNAL 


Jan.  7 
Cash  

$  5.00 

Harry  Smith  

$  5.00 

Borrowed  to  start  business. 
Merchandise  

voo 

Cash  

T.OO 

Purchased  6  boxes  soap. 
Cash  

I.OO 

Merchandise  

I.OO 

2  boxes  soap  sold. 
Cash  

IO.OO 

Harry  Smith  

IO.OO 

Additional  money  borrowed. 
Merchandise  

2.OO 

Cash  

2.OO 

Purchased  4  brooms. 
Cash  

.^o 

Merchandise  

.so 

Sold  i  broom. 

86 


ANSWERS  TO  PROBLEMS 
Answer — Problem  a 

LEDGER 
HARRY  SMITH 


Jan.  7    J. 
J- 


$5 
10 


MERCHANDISE 


Jan.  7    J , 
J 


$3.00 


Jan.  7    J. 


CASH 


1.00 
•50 


Jan.  7     J #  5-<*>     Jan.*]     J 

J i.do  J 2.00 

J 10.00 

J 50 

Answer— Problem  3 

JOURNAL 

Feb.  i 

Cash $10 

John  Jones $10 

Cash  invested  in  candy  business. 


88 


APPENDIX 


Feb.  2 

Merchandise $5 

Cash $5 

Purchased  50  Ibs.  sugar  at  10  cents  per 
Ib. 

Feb.  3 

Cash 4 

Merchandise 4 

Sold  40  Ibs.  sugar. 

LEDGER 
CASH 

Feb.  i     J $10     Feb.  2    J $5 

Feb.  3    J 4 

JOHN  JONES 

Feb.  I    J $10 

MERCHANDISE 
Feb.  2    J $5     Feb.  3    J $4 

TRIAL  BALANCE 

Dr.  Cr. 

Cash $14  $5 

John  Jones 10 

Merchandise 5  4 

$19  $19 


ANSWERS  TO  PROBLEMS 


89 


Answer — Problem  4 
JOURNAL 


Mar.  5 
Cash  

$20 

B.  Jones  

$20 

Invested  to  start  business. 
Merchandise  

10 

Cash  

10 

Purchased  flour. 
Mar.  6 

Cash  

Merchandise  

5 

Sale  flour. 

12 

Cash  

12 

Purchased  merchandise. 
Mar.  7 
Cash  

8 

Merchandise  

8 

Sale  merchandise. 
Cash  

5 

B.  Jones  

5 

Additional  investment. 

LEDGER 
CASH 


Mar.  5    J $20 

6  J 5 

7  J 8 

J 5 


Mar.  5     J. 
6    J. 


$10 

12 


APPENDIX 
B.  JONES 


Mar.  5    J , 
7    J. 


$20 

5 


MERCHANDISE 


Mar.  5 

J.  . 

$10 

Mar.  6 

J.  . 

$* 

6 

T.. 

12 

7 

T.. 

8 

Cash 

B.  Jones.  . . . 
Merchandise 


TRIAL  BALANCE 

Dr. 
$38 


22 


Cr. 

$22 
25 
13 


The  total  of  the  debit  side  of  the  Cash  account  is  $38. 
The  total  of  the  credit  side  is  $22.  The  cashier  is  now 
responsible  for  the  total  of  the  debits,  less  the  credits,  or 


Answer — Problem  5 
JOURNAL 


Apr.  2 

Cash 

Johnson,  Proprietor 

Invests  $30  to  start  business. 


$30 


$30 


ANSWERS  TO  PROBLEMS 


Rent  Expense 

Cash 

Pay  April  rent. 


Merchandise 

Cash 

Purchase  of  merchandise. 


Apr.  3 


Cash 

Merchandise 

Sale  of  merchandise. 

Cash 

Rent  Income 

Rent  received  for  front  store. 


Wage  Expense. 

Cash.  .  . 

Paid  wages. 


Apr.  4 


$10 


12 


$10 


12 


LED 
CA 

GER 
SH 

Apr.  2 

J  .  .                        $30 

Apr.  2     T   . 

$10 

i 

J  5 

J-. 

12 

J  4 

4    J-. 

8 

JOHNSON,  PROPRIETOR 


Apr.  2    J. 


$30 


92 


APPENDIX 
RENT  EXPENSE 


Apr.  2    J. 


$10 


MERCHANDISE 


Apr.  2     J $12 


Apr.  3     J. 


RENT  INCOME 


Apr.  3     J. 


WAGES  EXPENSE 


$4 


Apr.  4    J. 


$8 


TRIAL  BALANCE 
Dr. 


Cr. 

$30 
30 

5 

4 


The  following  accounts  represent  actual  property  or 
actual  debts:  Cash;  Johnson,  Proprietor;  Merchandise. 

The  following  accounts  represent  forces:  Rent  Ex- 
pense; Rent  Income;  Wages  Expense. 


Cash  

$39 

Johnson,  Proprietor  

Rent  Expense  

.  .  .        10 

Merchandise  

.  .  .           12 

Rent  Income  

Wages  Expense  

8 

$6^ 

ANSWERS  TO  PROBLEMS 

Answer — Problem  6 

JOURNAL 


93 


Apr.  5 
Cash  

d 

Sam  Smith  

$2^ 

Investment  to  start  business. 
Merchandise  

20 

A  i 

Cash  

'  2d 

Merchandise  purchased. 
Cash  

i  ? 

Merchandise  

IE 

Sale  of  merchandise. 

Apr.  6 
Merchandise  (new  account)  

10 

Merchandise  (old  account)  

IO 

LEDGER 
CASH 


Apr.  5   (J) $25 

J f5J 


Apr.  5    J 


SAM  SMITH,  PROPRIETOR 


Apr.  5    J. 


$25 


94 


APPENDIX 
MERCHANDISE  (old  account) 


Aor.  5 

T  . 

$20 

Apr.  s 

T   . 

$15 

6 

I.. 

MERCHANDISE  (new  account) 


Apr.  6    J $10 


•~  The  Merchandise  (old)  account  shows  that  we  have 
made  a  profit  on  sales  of  $5,  which  is  the  amount  the  $25 
on  the  credit  side  exceeds  the  $20  on  the  debit  side. 


Answer — Problem  7 
JOURNAL 


Dec.  31 
Merchandise  (old  account)  

$10 

Profit  and  Loss.  

$IO 

Closing  into  P.  &  L. 
Profit  and  Loss  

• 

5 

Closing  into  P.  &  L. 

PROFIT  AND  LOSS 


Dec.  31    J  Sal.  Exp $5     Dec.  31    J  Mdse $10 


ANSWERS  TO  PROBLEMS 


95 


The  net  amount  earned  is  the  difference  between  the 
$10  on  the  credit  side  of  the  Profit  and  Loss  account  and 
the  $5  on  the  debit  side.  It  amounts  to  $5. 


Answer— Problem  8 
JOURNAL 


Dec.  31 

Merchandise  (old  account) $20 

Profit  and  Loss $20 

Closing  into  P.  &  L. 

Profit  and  Loss 15 

v 

Salary  Expense 15' 

Closing  into  P.  &  L. 

Profit  and  Loss 5 

Harry  Hayes,  Proprietor 5 

Closing  into  Proprietor's  account. 

PROFIT  AND  LOSS  STATEMENT 

Income 

Merchandise  Profit $20 

Total  Income $20 

Expenses 

Salary  Expense $15 

Total  Expenses 15 

Net  Profit $"5 


96 


APPENDIX 


LEDGER 
PROFIT  AND  LOSS 


Dec.  31     J  Sal $15 

J  Prop.  Acct .         5 

$20 


Dec.  31     J  Mdse $20 


PROPRIETOR'S  ACCOUNT 


$20 


Jan.     I     J $60 

Dec.  31     J 5 

BALANCE  SHEET 

Assets 

Cash $40 

Merchandise 25    $65 

Liabilities 
Harry  Hayes,  Proprietor $65 

Answer — Problem  9 
JOURNAL 

Merchandise  (old  account) $20 

Profit  and  Loss $20 

Closing  into  P.  &  L. 

Profit  and  Loss 15 

Rent  Expense 15 

Closing  into  P.  &  L. 


ANSWERS  TO  PROBLEMS 


97 


Profit  and  Loss $5 

T.  Hart,  Proprietor $5 

Closing  net  profits  to  Proprietor's  account. 

LEDGER 

MERCHANDISE  <vnew  account) 
Dec.  31     J $25 

CASH 
Dec.  31     J $20     Dec.  31     J $15 

R.  L.  JACKSON 
Dec.  31     J $30 

MERCHANDISE  (old  account) 

Dec.  31     J $35      Dec.  31     J $55 

J 20 

RENT  EXPENSE 
Dec.  31    J $15     Dec.  31    J $15 


JONES  &  CO. 


I  Dec.  31     J. 


$33 


98  APPENDIX 

T.  HART,  PROPRIETOR 


Dec.  31     J $20 

JP.&L 5 


PROFIT  AND  LOSS 


Deo  31     J  Rent $15 


JProp. 


Dec.  31     J  Mdse $20 


PROFIT  AND  LOSS  STATEMENT 

Income 
Merchandise  Profit $20 

Total  Income $20 

Expenses 
Rent  Expense 15 

Net  Profit $  5 


BALANCE  SHEET— December  31 

Assets 

Cash $5 

R.  L.  Jackson 30 

Merchandise 25    $60 

Liabilities 

Jones  &  Co $35 

T.  Hart,  Proprietor 25     $60 


ANSWERS  TO  PROBLEMS 

Answer— Problem  10 
JOURNAL 


99 


Mar.  I 
Cash  

$100.00 

Harry  Smith,  Proprietor  

$100.00 

Investment  in  grocery  business. 
Store  Building  

so.oo 

Cash  

50.00 

Purchase  building  for  cash. 

Mar.  2 
Merchandise  

20.00 

%       Cash  

20.00 

Purchase  20  sacks  flour  at  $l  a  sack. 
Merchandise  

70.00 

Ross  &  Co  

70.00 

30  days'  time,  purchase  assorted  mer- 
chandise. 

Mar.  3 
Cash  

12.50 

Merchandise  

I2.5O 

Sale  10  sacks  flour  at  $1.25  a  sack. 
R.  E.  Colt  

4.0.00 

Merchandise  

4.O.OO 

Sale  30  days'  terms. 

Mar.  4 
Cash  

6    OP 

Merchandise  

•25 

6.25 

Sale  5  sacks  at  $1.25. 

100 


APPENDIX 


Salary  Expense  

$25.00 

Cash  

$25.00 

Salaries  paid. 
Mar.  5 
Light  Expense  

2.OO 

Cash  

2.0O 

Pay  electric  bill. 
Mar.  6 
Cash  

s.oo 

Rent  Income  

S.OO 

Collect  rent  for  part  of  store. 

Mar.  31 
Merchandise  (new  account)  

£ 

60.00 

Merchandise  (old  account)  

Inventory. 
Merchandise  (old  account)  

28.  7S 

Profit  and  Loss  

Closing  into  P.  &  L. 
Profit  and  Loss  

25.00 

2°-75 

Closing  into  P.  &  L. 
Profit  and  Loss  

2.OO 

25.00 

2.OO 

Closing  into  P.  &  L. 
Rent  Income  . 

S.OO 

Profit  and  Loss  

S.OO 

Closing  into  P.  &  L. 
Profit  and  Loss  

6.75 

Harry  Smith,  Proprietor  

6.7S 

Close    net    profit    into     Proprietor's 
account. 

ANSWERS  TO  PROBLEMS 


101 


LEDGER 
CASH 

Mar. 

I 

3 

4 
6 

J-. 

$100.00 

Mar.    i 

2 

4 
X 

J.. 

tso.oo 

J  

12.  SO 

T.. 

20.00 

T 

6.25 

T 

.  .          25.00 

T.. 

5.00 

T.. 

2.00 

HARRY  SMITH,  PROPRIETOR 


Mar.    I     J $100.00 

31     JP.&L.          6.75 


STORE  BUILDING 


Mar.    I     J . 


$50.00 


MERCHANDISE 


Mar. 

2   J.. 

$20.00 

Mar.  3 

J.. 

$1250 

J  

70.00 

J.. 

4.O.OO 

31  J  P.  &  L. 

28.75 

4. 

J-. 

6.25 

31 

J  

6O.OO 

ROSS  &  CO. 


Mar.    2    J , 


$70.00 


Mar.    3     J . 


R.  E.  COLT 


$40.00 


102 


APPENDIX 
SALARY  EXPENSE 


Mar.    4    J $25.00 


Mar.  31     J  P.  &  L.      $25.00 


LIGHT  EXPENSE 


Mar.    5    J , 


$2.00 


Mar.  31    JP.  &L.        $2.00 


RENT  INCOME 


Mar.  31     JP.  &L.         $5.00  |  Mar.    6    J $5.00 

MERCHANDISE  (new  account) 


Mar.  31     J $60.00 

PROFIT  AND  LOSS 


Mar.  31     J  Salaries  $25.00 

J  Lights  2.00 
J  Prop. 

Acct.. .  6.75 


Mar.  31     J  Mdse. .       $28.75 
J  Rent 

Income         5.00 


The  trial  balance  before  closing  the  various  force  ac- 
counts into  the  Profit  and  Loss  account  will  appear  as 
follows: 

March  31 

Dr.  Cr. 

Cash $123.75  $97-00 

Harry  Smith,  Proprietor . . .  100.00 

Store  Building 50.00 


ANSWERS  TO  PROBLEMS  103 

Merchandise  (old  account)  90.00             118.75 

Ross  &  Co 70.00 

R.  E.  Colt 40.00 

Salary  Expense 25.00 

Light  Expense 2.00 

Rent  Income 5.00 

Merchandise  (new  account)  60.00 

$390.75          $390-75 

The  trial  balance  after  closing  the  force  accounts  is 
given  below.  You  will  see  that  in  this  trial  balance 
we  show  only  the  difference  between  the  debits  and 

*X^t^-^ta-*^^stax-%^%'y^I,^N_x^-^%w_X^c;^    "— ^*--^     >«^     %^-'"~"sfc-X^V--^-^»x-gx-^_^^^^p^^^ 

credits. 

Dr.  Cr. 

Cash $26.75 

Harry  Smith,  Proprietor.  .  $106.75 

Store  Building 50.00 

Ross  &  Co 70.00 

R.E.Colt 40.00 

Merchandise. 60.00 

$176.75  $176.75 

BALANCE  SHEET— March  31,  1920 

Assets 

Cash $  26.75 

Merchandise 60.00 

R.E.Colt 40.00 

Store  Building 50.00    $176.75 

Liabilities 

Ross  &Co $  70.00 

Harry  Smith,  Proprietor. . .       106.75    $i?6-75 


104 


APPENDIX 


PROFIT  AND  LOSS  STATEMENT 

Income 
Merchandise  Profit $28.75 


Rent  Income. 


5.00 


Total  Income $33-75 

Expenses 

Salaries $25.00 

Lights 2.00 

Total  Expenses $27.00 

Net  Profit $  6.75 


Answer— Problem  n 
JOURNAL 


Jan.  5 


Cash. 


Notes  Payable 

Borrowed  on  go-day  6%  note. 


Notes  Receivable 

Merchandise 

6o-day  6%  note  in  payment   of  mer 
chandise. 


Mar.  4 


Cash. 


Notes  Receivable 

Interest  Income 

Customer  pays  note  dated  Jan.  5. 


$40.00 


30.00 


30.30 


$40.00 


30.00 


30.00 
•30 


ANSWERS  TO  PROBLEMS 


105 


LEDGER 
CASH 


Jan.    5     J. 
Mar.  4    J , 


$40.00 
30.30 


NOTES  PAYABLE 


Jan.    5     J. 
NOTES  RECEIVABLE 


$40.00 


Jan.   5    J $30.00     Mar.  4    J $30.00 

MERCHANDISE 

Jan.   5    J $30.00 

INTEREST  INCOME 

I  Mar.  4    J $.30 

Answer — Problem  12 
JOURNAL 

Merchandise $50.00 

J.  Jones $50.00 

Merchandise  purchased  on  30  days'  2% 
terms. 


io6 


APPENDIX 


J.  Tones.  . 

$50.00 

Cash  

$4.0.00 

Discount  Income  

I.OO 

Paid  Jones  less  2%  discount. 
John  Hall  

20.00 

Merchandise  

20.00 

Sold  on  terms. 
Cash  

iq.6o 

Discount  Expense  

.4.0 

John  Hall  

20.00 

LEDGER 
MERCHANDISE 


J 


$20.00 


J.  JONES 


$50.00 


CASH 


..     $19.60     J 

DISCOUNT  INCOME 


$49.00 


I' 

JOHN  HALL 


$1.00 


$20.00     J $20.00 


ANSWERS  TO  PROBLEMS 
DISCOUNT  EXPENSE 


107 


$.40 


Dr. 


Answer — Problem  13 
CASH  BOOK 


Cr. 


Jan.  8     Mdse $100 

Rent  Inc 30 

Mrs.  Jackson.         15 


Jan.  8     Insurance  Exp.     $25 
Mdse 30 


LEDGER 
CASH  ACCOUNT 


Jan.  8    CB $145 


Jan.  8    CB. 


$55 


MERCHANDISE  ACCOUNT 


Jan.  8 

CB  

$30 

Jan.  8 

CB  

.  .  .  .     $100 

RENT  INCOME 


Jan.  8     CB. 
MRS.  JACKSON 


$30 


Jan.  8    CB $15 


io8 


APPENDIX 
INSURANCE  EXPENSE 


Jan.  8     CB $25 


Answer — Problem  14 
CASH  BOOK 


Jul.  3     Int.  Inc. 


Jul.  I     Rent  Exp $20 

3      Salary  Exp..  .  .        12 
7     Trucking  Exp . .         7 


JOURNAL 


Dec.  31 
Profit  and  Loss  

$20 

Rent  Expense  

$2O 

Closing  into  P.  &  L. 
Profit  and  Loss.  .  .       

12 

Salary  Expense  

12 

Closing  into  P.  &  L. 
Interest  Income  

6 

Profit  and  Loss  

6 

Closing  into  P.  &  L. 
Profit  and  Loss  

7 

Trucking  Expense  

7 

Closing  into  P.  &  L. 

ANSWERS  TO  PROBLEMS 

LEDGER 
RENT  EXPENSE 


109 


Jul.     i    CB. 


$20 


Dec.  31     J. 


$20 


SALARY  EXPENSE 


Jul.     3     CB $12 


Dec.  31     J $12 


INTEREST  INCOME 


Dec.  31     J. 


Jul.     3     CB. 


TRUCKING  EXPENSE 


$6 


lul.      7 

CB  

$7 
CA 

Dec.  31 
SH 

J.. 

$7 

Jul.     3 

CB  

«fi 

Jul.      i 
3 
7 

\ND  LOS 

CB. 

$20 
12 

7 

PROFIT  , 

CB  

CB  

;s 

Dec.  31 

J  Rent  Exp... 
J  Sal.  Exp.  .  . 
J  Trucking 
Exp.  .  . 

$20 
12 

7 

Dec.  31 

J  Int.  Inc.  . 

$6 

no 


APPENDIX 

PROFIT  AND  LOSS  STATEMENT 

Income 

Interest $6 

Total  Income $6 

Expenses 


Rent 

Salaries . . 
Trucking . 


$20 
12 

7 


Total  Expenses 39 

Net  Loss $33 


Answer — Problem  15 
JOURNAL 


Dec.  31 


Rent  Income 

Profit  and  Loss .... 
Closing  into  P.  &  L. 

Merchandise  (old  account) , 
Profit  and  Loss .... 
Closing  into  P.  &  L. 


Profit  and  Loss 

Insurance  Expense. 
Closing  into  P.  &  L. 


Profit  and  Loss 

Salary  Expense.  . 
Closing  into  P.  &  L. 


$100 


300 


200 


$100 


300 


50 


200 


ANSWERS  TO  PROBLEMS 


HI 


Profit  and  Loss $150 

A's  Proprietor  Account $100 

B's  Proprietor  Account 50 

To  distribute  profit  to  partners. 

LEDGER 
PROFIT  AND  LOSS 

Dec.  31     J  Ins $50     Dec.  31     J  Rent $100 

J  Sal 200  J  Mdse 300 

J  A's  Prop. 

acct 100 

J  B's  Prop. 

acct 50 

A'S  PROPRIETOR  ACCOUNT 

Dec.  31    J Jioo 

B'S  PROPRIETOR  ACCOUNT 

Dec.  31     J $50 

Answer — Problem  16 

JOURNAL 

Dec.  31 

Merchandise  (old  account) $100 

Profit  and  Loss Jioo 

Closing  into  P.  &  L. 


112 


APPENDIX 


Rent  Income  

$40 

Profit  and  Loss  

$4.0 

Closing  into  P.  &  L. 
Profit  and  Loss  

CQ 

Insurance  Expense  

so 

Closing  into  P.  &  L. 
Profit  and  Loss  

80 

Salary  Expense  

80 

Closing  into  P.  &  L. 
Profit  and  Loss  

10 

Surplus  

IO 

Closing  net  profit  into  Surplus  account. 

LEDGER 

PROFIT  AND  LOSS 


Dec.  31 

J  Ins  

$50 

Dec.  31     J  Mdse  

$100 

J  Sal.  .  , 

80 

J  Rent  .... 

40 

J  Surplus  .  .  . 

10 

SURPLUS  ACCOUNT 


Jan.     I     Bal. , 
Dec.  31     J.. . 


BALANCE  SHEET 

Assets 

Merchandise $300 

Accounts  Receivable . . ,  200 


$30 
10 


Jsoo 


ANSWERS  TO  PROBLEMS 


113 


Liabilities 

Accounts  Payable $  60 

Capital  Stock 400 

Surplus 40 


$500 


(Note  that  we  have  increased  the  Surplus  account  to 
$40  by  crediting  it  with  the  net  profits  for  the  period.) 


Answer — Problem  17 
JOURNAL 


Dec.  31 
Depreciation  Expense  

$   4.O 

Building  

$  40 

Depreciation  I  year  at  4%. 
Depreciation  Expense  

SO 

Fixtures  '  

so 

Depreciation  I  year  at  10%. 
Depreciation  Expense  

1  60 

Auto  

1  60 

Depreciation  I  year  at  20%. 
Profit  and  Loss  

2  SO 

Depreciation  Expense  

2  SO 

Closing  into  P.  &  L. 

LEDGER 
BUILDING 


Jan.     I     J. 
a 


$1,000 


Dec.    i    J , 


$40 


APPENDIX 
FIXTURES 


Jan.     i     J. 


$500 


Dec.    I     J . 


AUTO 


Jan.     i     J. 


$800 


Dec.    i     J . 


$160 


DEPRECIATION  EXPENSE 


Dec.  31     J $40     Dec.  31     $250 

J 50 

J 160 

PROFIT  AND  LOSS 
Dec.  31     Depr $250 

Answer — Problem  18 
JOURNAL 

Dec.  31 

Interest  Expense $30 

Accrued  Interest  Payable $30 

Accrued  interest  $i  ,000,  6  months  at  6%. 

Insurance  Expense 10 

Prepaid  Insurance 10 

Insurance  used  November  and  December 
2  months  at  $5  a  month. 


ANSWERS  TO  PROBLEMS 

LEDGER 
PREPAID  INSURANCE 


Nov.    I     CB $60     Dec.  31     J 


$10 


ACCRUED  INTEREST  PAYABLE 


Dec.  31     J 


$30 


INTEREST  EXPENSE 


Dec.  31     J. 


$30 


INSURANCE  EXPENSE 


Dec.  31     J $10 


Dr. 


Answer — Problem  19 


CASH  BOOK 


Cr. 


Dec.     I     H.  White, 

Prop....     $1,500 
31     Mdse 800 


Dec.     I     Prepaid  Ins.  $120 

2     Mdse 300 

1 1     Smith  &  Co.  882 

31     Wage  Exp. .  200 

Rent  Exp. . .  55 


APPENDIX 
JOURNAL 


Dec.  2 
Merchandise  

SQOO 

Smith  &  Co  

$QOO 

Merchandise  purchased  on  10  days'  2% 
terms. 

Dec.  3 
Mrs.  Brown  

SO 

Merchandise  

so 

Merchandise  sold  on  30  days'  terms. 

Dec.  ii 
Smith  &  Co  

18 

Purchase  Discount  

18 

2%  discount  on  $900  bill. 

Dec.  31 
Merchandise  (new  account)  

700 

Merchandise  (old  account)  

7OO 

Inventory. 
Insurance  Expense  

10 

Prepaid  Insurance  

IO 

One  month's  insurance  used. 

LEDGER 

HARRY  WHITE,  PROPRIETOR 
Dec.    I     CB. . . 


$1,500 


ANSWERS  TO  PROBLEMS 
PREPAID  INSURANCE 


117 


Dec.    I     CB $120 

Jan.     I     Balance...        $110 


Dec.  31     J. 


$10 


MERCHANDISE 


Dec.    2 

CB  

$300 

Dec.    ^     T  .  .                   $  ^o 

J.  . 

ooo 

31    CB  800 

SMITH 

J..                     700 

&  CO. 

Dec.  II 

CB.. 

$882 

Dec.    2     T.  .                     $000 

J  

18 

MRS.  BROWN 

Dec.    3 

J.. 

$5O 

PURCHASE  DISCOUNT 


Dec.  II     J, 


MERCHANDISE  (new  account) 


Dec.  31    J. 


$700  I 


$18 


118 


APPENDIX 
CASH 


Dec.  31    CB $2,300 


Jan.     I     Balance...        $743 

INSURANCE  EXPENSE 


Dec.  31     CB $1,557 


Dec.  31     J, 


WAGE  EXPENSE 


Dec.  31 

CB  

$200 

RENT  EXPENSE 


Dec.  31     CB. 


$55 


TRIAL  BALANCE— December  31 
(Before  Closing) 

Dr. 

Harry  White,  Proprietor 

Prepaid  Insurance $  no 

Merchandise  (old  account) .... 

Mrs.  Brown 50 

Purchase  Discount 

Merchandise  (new  account). . . .  700 

Cash 743 

Insurance  Expense 10 

Wage  Expense 200 

Rent  Expense 55 


Cr. 

$1,500 

350 
18 


$1,868         $1,868 


ANSWERS  TO  PROBLEMS 

Answer— Problem  ao 

JOURNAL 


119 


Dec.  31 
Merchandise  (old  account)  

$"*«> 

Profit  and  Loss  

Jico 

Closing    profit    on     merchandise     into 
P.  &L. 

Purchase  Discount  

18 

Profit  and  Loss  y  

18 

Closing  into  P.  &  L. 
Profit  and  Loss  

10 

Insurance  Expense  

IO 

Closing  into  P.  &  L  

Profit  and  Loss  

200 

Wage  Expense  

200 

Closing  into  P.  &  L. 

ce 

Rent  Expense  

ec 

Closing  into  P.  &  L. 

lot 

Harry  White,  Proprietor  

I  (VI 

Crediting  net  profit  to  Proprietor. 

LEDGER 
HARRY  WHITE,  PROPRIETOR 


Dec.    I     CB. 
31    J.. 


$1,500 
103 


Dec.    2 
31 

CB.. 

....     $    300 

Dec.    3 
3i 

DISCOUF 

J  

$      50 
800 
700 

J-. 

....          900 

CB  

J-. 

J.. 

oo 

JT 

PURCHASE 

1,550 

Dec.  31 

J-. 

$18 

Dec.  ii 
2  EXPEN 

J.  • 

$18 

INSURANC1 

SE 

Dec.  31 

J-. 

$10 

Dec.  31 
XPENSE 

J.. 

$10 

WAGE  E 

Dec.  31 

CB.. 

$200 

Dec.  31 
XPENSE 

J  

$200 

RENT  E 

Dec.  31 

CB.. 

$55 

Dec.  31 
ND  LOSS 

J.. 

$55 

PROFIT  A 

Dec.  31 

J  Ins.  Exp  .  .   $  10 
J  Wage  Exp.     200 
J  Rent  Exp  .  .       55 
J.  H.   White, 
Prop  103 

Dec.  31 

JMdse... 
J  Purchase 
Dis  

$350 

18 

$368 

$368 

ANSWERS  TO  PROBLEMS  121 

TRIAL  BALANCE— December  31 

(After  Closing) 

Dr.  Cr. 

Harry  White,  Proprietor $1,603 

Prepaid  Insurance $    1 10  , 

Mrs.  Brown 50 

Merchandise 700 

Cash  Account 743 

$1,603  $1,603 


BALANCE  SHEET— December  31 

Assets 

Cash $  743 

Mrs.  Brown 50 

Merchandise 700 

Prepaid  Insurance no 

Total  Assets $1,603 


Liabilities 

Harry  White,  Proprietor $1,603 

Total  Liabilities $1,603 


PROFIT  AND  LOSS  STATEMENT 
December  I  to  December  31 

Income 

Merchandise  Profit $350 

Purchase  Discount 18 

Total  Income $368 


122  APPENDIX 

Expense 

Insurance  Expense $  10 

Wage  Expense 200 

Rent  Expense 55 

Total  Expense 265 

Net  Profit $103 


APPENDIX  D 

BIBLIOGRAPHY  OF  SELECTED  ACCOUNTING 
BOOKS 

Accountants'  Handbook.  New  York,  The  Ronald  Press 
Company. 

Bell,  W.  H.  Accountants'  Reports.  New  York,  The  Ronald 
Press  Company. 

Bennett,  R.  J.  Corporation  Accounting.  New  York,  The 
Ronald  Press  Company. 

Bliss,  J.  H.  Management  Through  Accounts.  New  York, 
The  Ronald  Press  Company. 

Business  Accounting.  Edited  by  Harold  Dudley  Greeley. 
6  vol.  New  York,  The  Ronald  Press  Company. 

Cole,  W.  M.  Accounts,  Their  Construction  and  Interpreta- 
tion for  Business  Men  and  Students  of  Affairs.  New 
York,  Houghton,  Mifflin  Company. 

Fundamentals  of  Accounting.  New  York,  Houghton,  Mifflin 
Company. 

Dickinson,  A.  L.  Accounting  Practice  and  Procedure.  New 
York,  The  Ronald  Press  Company. 

Esquerre,  P.  J.  Applied  Theory  of  Accounts.  New  York, 
The  Ronald  Press  Company. 

Practical  Accounting  Problems.  New  York,  The  Ronald 
Press  Company. 

Finney,  H.  A.  Principles  of  Accounting.  New  York,  Pren- 
tice-Hall, Inc. 

Gilman,  S.  Principles  of  Accounting.  Chicago,  LaSalle  Ex- 
tension University. 

123 


124  APPENDIX 

Greer,  H.  C.     How  to  Understand  Accounting.     New  York, 

The  Ronald  Press  Company. 
Hatfield,    H.    R.      Accounting,    Its    Principles    and    Problems. 

New  York,  D.  Appleton  &  Company. 
Hodge,  A.  C.,  and  McKinsey,  J.  O.     Principles  of  Accounting. 

University  of  Chicago  Press. 
Kester,  R.  B.     Accounting  Theory  and  Practice.     3  vol.     Vol. 

1-2,  first  and  second  year  text.     New  York,  The  Ronald 

Press  Company. 
Kohler,  E.  L.,  and  Morrison,  P.  L.    Principles  of  Accounting. 

Chicago,  A.  W.  Shaw  Company. 
Krebs,   W.   S.     Outlines  of  Accounting.     New   York,   Henry 

Holt  and  Company. 
Paton,  W.  A.,  and  Stevenson,  R.  A.    Principles  of  Accounting. 

New  York,  The  Macmillan  Company. 

Powelson,  J.  A.     Introductory  Accounting.     New  York,  Pren- 
tice-Hall, Inc. 

Sprague,  C.  E.,  and  Perrine,  L.  L.     Accountancy  of  Invest- 
ment.   New  York,  The  Ronald  Press  Company. 
Sprague,  C.  E.    Philosophy  of  Accounts.    New  York,  The 

Ronald  Press  Company. 
Toner,  James  V.     The  Mathematics  of  Finance.     New  York, 

The  Ronald  Press  Company. 
Walton,  S.,  and  Finney,  H.  A.     Mathematics  of  Accounting 

and  Finance.    New  York,  The  Ronald  Press  Company. 
Woodbridge,   F.   W.     Elements   of   Accounting.     New   York, 

The  Ronald  Press  Company. 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

Los  Angeles 
This  book  is  DUE  on  the  last  date  stamped  below. 


DEO  3  o  1980 


Form  L'J— Series  444 


